Introduction

The growth and development of every nation, region, metropolitan area and county depends on the quality of human resources. Tallman and Wang (1994) and Lin (2003) were of the view that quality human resources contribute to long-term economic growth. Forbes, Barker & Turner (2010) defined human capital as a set of attributes possessed by an individual that makes him or her able to contribute to production. Therefore, an individual with good quality human resources is a person rich in accumulation of knowledge and who possesses skills that lead to increased productivity and performance in the labor market (Lin, 2003).

Many young adults enter the labor market with the expectation working until retirement. But, most of them either leave or die before retirement because of health conditions especially those with some chronic diseases. These health conditions reduce their productivity at work and the number of hours worked.

Research conducted by the Center for Disease Control and Prevention (2011) indicated that chronic diseases[1] represented seven of the top ten causes of death in the United States in 2010. The chronic diseases accounted for 65.8% of all deaths among males and 67.2% of all deaths among females in United States in 2010. In addition to the pain and death that chronic diseases accounted, it diminishes both physical and mental capabilities that sometimes leads to disruption normal work (Chirikos 1993).

Chronic diseases[2] and related risk factors may affect labor productivity and labor supply, which have adverse effects on individuals and households. Therefore, health affects a worker’s wage through productivity. Workers with chronic diseases and other related risk factors can work for fewer hours. The theoretical underpinning of this effect is that healthier individuals are more likely to produce more output per hour worked considering that healthy people have better physical and mental capacities (Suhrcke, Nugent, Stuckler and Rocco, 2006).

Counterintuitively, economic theory suggests two effects of health on labor productivity and labor supply. The two effects are substitution and income effect. According to Borjas, substitution effect implies that an increase in the wage rate increases hours worked when real income is held constant (Borjas, 2016:39). Applying this to the study, if the outcome of poor health is to reduce wages through lower productivity, this would increase leisure and therefore lower labor supply since worker compensation from work is likely to diminish (Suhrcke et al., 2006; Currie and Madrian, 1999). For the income effect, increase in wage gives the worker a variety of consumption choices that increases her demand for leisure and decreases labor supply (Borjas, 2016:39). To avoid a reduction in wage rate that can affect lifetime earnings due to lower productivity, the worker has to increase the number of hours worked with the chronic condition (Borjas, 2016; Currie and Madrian, 1999). This could further worsen the health of the worker, because the worker does not want to remain unemployed.