Mental Health and Labour Market Participation: Evidence from IV Panel Data Models

Paul Frijters, David Johnston and Michael Shields

No 4883, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A large body of empirical research links mental health and labour market outcomes; however, there are few studies that effectively control for the two-way causality between work and health and the existence of unobserved individual characteristics that might jointly determine health and labour market outcomes. In this study, we estimate the effect of mental health on labour market participation using various models, including instrumental variable models that exploit individual variation observed in panel data. We find robust evidence that a reduction in mental health has a substantial negative impact on the probability of actively participating in the labour market. We calculate that a one standard deviation decrease in mental health decreases the probability of participation by around 17 percentage points. This effect is larger for females and for older individuals. We therefore provide robust evidence that there are substantial costs due to the lost productivity resulting from poor mental health.

Keywords: measurement error; mental health; labour market participation; causality (search for similar items in EconPapers)
JEL-codes: I10 J21 J22 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-04
New Economics Papers: this item is included in nep-hea and nep-lab
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Citations: View citations in EconPapers (31)

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