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

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Listed:
  • Frijters, Paul

    (London School of Economics)

  • Johnston, David W.

    (Monash University)

  • Shields, Michael A.

    (Monash University)

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.

Suggested Citation

  • Frijters, Paul & Johnston, David W. & Shields, Michael A., 2010. "Mental Health and Labour Market Participation: Evidence from IV Panel Data Models," IZA Discussion Papers 4883, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4883
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    More about this item

    Keywords

    measurement error; mental health; labour market participation; causality;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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