Every crisis has a silver lining? Unravelling the pro-cyclical pattern of health inequalities by income

It is well known that income and health are positively associated. Much less is known about the strength of this association in times of growth and recession. We develop a novel decomposition method that focuses on isolating the roles played by government transfers ─ like pensions ─ versus market transfers ─ such as wages ─ on changes in income-related health inequality (IRHI) in Europe. Using Survey of Income and Living Conditions (SILC) panel data for 7 EU countries from 2004 to 2013, we decompose the changes in IRHI, while paying close attention to possible effects of the 2008 financial crisis. Perhaps surprisingly, we find that such inequalities rise in good economic times and fall in bad economic circumstances. The observed pro-cyclical pattern of IRHI can largely be explained by the relative stickiness of old age pension benefits compared to the market incomes of younger groups. We also examine to what extent pension policies and austerity measures had any impact on the evolution of IRHI. Less surprisingly, our findings suggest that austerity measures have weakened the IRHI reducing effect of government transfers. It turns out that the most important IRHI reducing role is played by pension policies that protect the relative incomes of the very elderly, already retired groups.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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