The Effect of Accidents on Labor Market Outcomes: Evidence from Chile

We estimate the causal effect of accidents on employment and earnings in the Chilean labor market using event study methods and monthly data. An accident reduces the probability of being employed by 8.3 percentage points in the first year, by 11.1 percentage points in the second year, and by 14.5 percentage points in the third year after the accident. On average, employment declines by 14%, relative to the pre-accident mean. In addition, accidents reduce monthly earnings by around US$60 in the first year, US$94 in the second year, and US$125 in the third year after the accident. On average, monthly earnings fall by 16%, relative to the pre-accident average. Thus, we estimate a persistent, or even increasing, labor market effect from accidents over time. Our findings imply that the economic consequences of health shocks go beyond direct medical expenses.

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