# **Identification strategy, sample selection and data**

There are few surveys in Egypt including information on both health and labor market variables. Several rounds of the Demographic and Health Survey (DHS) focus mainly on health and only little attention is paid to labor. EHHUES 2002 is relatively rich in both dimensions, as it includes information on occupation, hours worked, cash and in kind payments, frequency of payments, although its primary focus is on health conditions, health care utilization and expenditure. Unfortunately this survey is cross-sectional only, further complicating the challenge of identifying the causal impact of chronic conditions. It has long been recognized that especially education and health are likely to be correlated with unobservable individual characteristics. These same individual characteristics are also determinants of individual productivity and individual propensity to supply work. Therefore, the omission of unobservables would make both education and health endogenous. A strategy to deal with unobservables is that of removing them by exploiting the within-individual variation, i.e. by exploiting the variations over-time in labor market outcomes and health of each individual. As unobservables can often be assumed constant, within-individual estimators, such as first-difference, are able to remove them from the model and still to identify the structural parameters. In our context, within-individual estimators would net out both idiosyncratic and common components of ability. This option is ruled out by the cross-sectional nature of our data. Another possible identification strategy is that of Instrumental Variables (IV). Here we make use of them only to solve additional problem of measurement error – as we shall discuss below –, but IV methods are often used to disentangle the impact of health and education from that of unobservables. The EHHUES2002 does not include variables suitable to be used as instruments, and external data, for instance, on reforms are difficult to find. Although the levels of enforcement of any reform in different governorates are likely to differ, increasing the attractiveness of IV, reliable and complete data on the effective enforcement at different times and places are difficult to obtain, if they exist at all.

The strategy we have followed in this paper dates back at least to the 1970ies (see Griliches, 1979 for an early survey) and exploits the fact that siblings and especially twins have similar characteristics. For siblings, part of the genetic endowment is common and, especially if they have lived together within the same family for long time, the family background they have experienced is similar (see Ermish and Francesconi 2001 for a discussion on the extent to which family background can be assumed to be really similar). Of course this argument applies far better to twins, where both genetic endowment and family background essentially coincide. In this case, rather than exploiting within-individual variation, it is possible to exploit within-family or within-siblings variation, removing the common component of unobservables among siblings. Such a strategy, applied to samples of twins, has been followed by Ashenfelter and Krugman (1994), Ashenfelter and Rouse (1998) among many others. Recently Oreopoulos el. al. (2008) adopted it to identify the long term effects of child health on future occupation. However the list of papers resting on 9