The Impact of Education and Occupation on Temporary and Permanent Work Incapacity

This paper investigates whether education and working in a physically demanding job causally impact temporary work incapacity (TWI), i. e. sickness absence and permanent work incapacity (PWI), i. e. the inflow to disability via sickness absence. Our contribution is to allow for endogeneity of both education and occupation by estimating a quasi-maximum-likelihood discrete factor model. Data on sickness absence and disability spells for the population of older workers come from the Danish administrative registers for 1998–2002. We generally find causal effects of both education and occupation on TWI. Once we condition on temporary incapacity, we find again a causal effect of education on PWI, but no effect of occupation. Our results confirm that workers in physically demanding jobs are broken down by their work over time (women more than men) but only in terms of TWI.