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This study examines how chronic illness is associated with labor market outcomes by inferring disability from observed patterns of occupational choice rather than relying on self-reported disability measures. The analysis is grounded in a feasibility-constraint framework in which individuals select occupations to maximize expected earnings, subject to constraints related to health, skills, and access to employment opportunities. Within this framework, a chronic condition is interpreted as disabling when it restricts the set of feasible occupations and removes the occupation that would otherwise be chosen in the absence of the condition.

 

Using pooled data from the National Health Interview Survey (NHIS) for the period 2009-2018, occupational choice is modelled using a multinomial logit specification across categories defined by physical task demand, and earnings outcomes are analyzed using log wage regressions. The analysis considers three prevalent chronic conditions—arthritis, diabetes, and heart disease—to examine how differences in functional limitations are associated with occupational sorting and earnings outcomes.

 

The results indicate that chronic illnesses are associated with heterogeneous patterns of occupational allocation. Arthritis is associated with reduced representation in physically demanding occupations, particularly among individuals with higher levels of education, consistent with reallocating toward less physically intensive work. Among individuals with lower levels of education, such reallocations appear to be more limited. Diabetes is associated with more diffuse patterns of occupational change, suggesting broader constraints on work capacity. Heart disease exhibited an intermediate pattern, with modest shifts in occupational allocation alongside within occupation effects.

 

Across conditions, chronic illness is associated with lower earnings on average, reflecting both differences in occupational allocation and variations within occupations. These findings are consistent with an interpretation in which health-related constraints operate through multiple channels and access to alternative occupations plays a central role in shaping observed labor market outcomes. More broadly, the results suggest that patterns of occupational sorting provide a useful empirical lens through which to study the labor market implications of chronic illnesses.

 

Keywords: labor economics, disability, impairment, labor participation, arthritis, diabetes, heart diseases, occupational sorting, wage penalty, econometrics, health economics, statistical method

 

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