The unobserved pattern of material hardship and health among older Americans

This paper investigates the relationship between self-reported health and material hardship among older Americans. Differently from income-based measures, material hardship provides a more specific description of the concrete adversities faced by the elderly. We have used the last six waves of the Health and Retirement Study to explore the relative contributions of state dependence, unobserved heterogeneity and time-specific shocks on reporting poor health, experiencing food insecurity and medication cutbacks. We have used a Latent Markov model to estimate a multivariate non-linear system of equations for panel data allowing time-varying unobserved heterogeneity. Our results reveal a high state dependence of both health and material hardship conditions. Estimated trajectories reveal that pathways of material hardship are associated differently with health. Material hardship is also spread across its dimensions.