Health shocks and social drift: Examining the relationship between acute illness and family wealth

Abstract

This paper analyzes the extent to which health shocks play a role in black-white wealth inequality. Deploying data from the Panel Study of Income Dynamics, we implement a first-differences identification strategy in estimating the effects of acute health events on changes in wealth for couples across waves of data from 1999 to 2011. We find that although such shocks affect both white and black families, they make black families more vulnerable financially as family heads near retirement. In comparison with their white counterparts, black families that experience an acute health shock are more likely to rely on social safety nets, such as food stamps and Social Security Disability Insurance. Findings hold implications across multiple policy arenas, including health-care and labor law.