The aim of this chapter is to empirically examine the impact of health problems of the elderly on their own and their household’s income. Using micro panel data from the “Survey on Health and Retirement” focusing on the elderly, we estimate the effect on an individual’s income and his household’s income of the number of illnesses respondents suffered in the three years preceding the survey, of suffering from a lifestyle disease, and of suffering from one of the three major “killer diseases” in Japan (cancer or malignant growth, heart disease, stroke or cerebrovascular disease). In order to deal with endogeneity in the health indicators, we employ survey respondents’ body mass index at age 30 and their parents’ medical history as instruments in the estimation and, when focusing on suffering from at least one of the three killer diseases, use respondents’ body height as an additional instrument. In the estimation, we focus on male survey participants. The results suggest that an additional illness in the preceding years on average significantly reduced individuals’ income. On the other hand, although the estimated coefficients on the effect of lifestyle diseases on individuals’ income or household income were as expected negative, they were insignificant in both cases. Furthermore, when dividing observations into two subsamples ? men under the age of 60 and age 60 and over ? we find that in the case of the under 60s, a deterioration in health on average has no significant effect either on the individuals’ own income or their household income. Likely reasons are that, if at all possible, such individuals will continue to work, or that any decline in income is offset by the spouse starting to work and/or the receipt of insurance payments. On the other hand, for men aged 60 and over, a deterioration in health has a significant impact on their own income, but that on household income is limited. That such individuals’ own income declines is likely due to the fact that they are much more likely to stop working as a result of health problems, while the limited effect on household income may be due to the fact that the share of such individuals’ income in total household income is relatively small.
