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THE EFFECT OF MENTAL HEALTH ON EMPLOYMENT: EVIDENCE FROM AUSTRALIAN PANEL DATA
Author(s) -
Frijters Paul,
Johnston David W.,
Shields Michael A.
Publication year - 2014
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.3083
Subject(s) - unobservable , instrumental variable , mental health , confounding , british household panel survey , panel data , demographic economics , margin (machine learning) , econometrics , labour supply , endogeneity , affect (linguistics) , quality (philosophy) , causality (physics) , work (physics) , economics , psychology , medicine , labour economics , psychiatry , computer science , mechanical engineering , philosophy , physics , epistemology , machine learning , quantum mechanics , engineering , communication , pathology
ABSTRACT To what extent does poor mental health affect employment outcomes? Answering this question involves multiple technical difficulties: two‐way causality between health and work, unobservable confounding factors and measurement error in survey measures of mental health. We attempt to overcome these difficulties by combining 10 waves of high‐quality panel data with an instrumental variable model that allows for individual‐level fixed effects. We focus on the extensive margin of employment, and we find evidence that a one‐standard‐deviation decline in mental health reduces employment by 30 percentage points. Further investigations suggest that this effect is predominantly a supply rather than a demand‐side response and is larger for older than young workers. Copyright © 2014 John Wiley & Sons, Ltd.