We investigate how the labour outcomes response to health shocks evolves in the long run. Using Italian administrative data covering employment, social security, and
hospitalisation histories, we remove bias from observables and unobservables applying matching and parametric regression to multiple comparison groups. Results show that reductions in employment and income persist in the long run. The ability to continue to work is greater if treated in higher quality hospitals and for those employed in large firms. Whereas a generous social insurance system might permanently compensate for part of the earnings loss, our findings question the appropriateness of existing labor-inclusion policies.

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