Abstract
This paper examines the effect of health on labour force participation using the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The potential endogeneity of health, especially selfβassessed health, in the labour force participation equation is addressed by estimating the health equation and the labour force participation equation simultaneously. Taking into account the correlation between the error terms in the two equations, the estimation is conducted separately for males aged 15β49, males aged 50β64, females aged 15β49 and females aged 50β60. The results indicate that better health increases the probability of labour force participation for all four groups. However, the effect is larger for the older groups and for women. As for the feedback effect, it is found that labour force participation has a significant positive impact on older females' health, and a significant negative effect on younger males' health. For younger females and older males, the impact of labour force participation on health is not significant. The nullβhypothesis of exogeneity of health to labour force participation is rejected for all groups. Copyright Β© 2005 John Wiley & Sons, Ltd.