The Impact of Precarious Employment on Mental Health: the Case of Italy

In this paper, we investigate the impact of precarious employment on mental health using a unique dataset that matches information on mental health with labour characteristics for a set of employees in Italy. We examine the causal effect of temporary contracts, their duration and the number of contract changes during the year on psychotropic medication prescription. To this end, we estimate a dynamic probit model, and deal with the potential endogeneity of regressors by adopting a control function approach, recently advanced by Wooldridge (2014). Our results show that the probability of psychotropic medication prescription is higher for workers under temporary job contracts. More days of work under temporary contract as well as more changes in temporary contracts significantly increase the probability of being depressed. We also find that moving from permanent to temporary contracts increases depression; symmetrically, although with a smaller effect in absolute value, moving from temporary to permanent contracts tends to reduce it. An exploratory data analysis corroborates the hypothesis that depression developed after a movement to precarious employment may permanently affect future job trajectories. One lesson to learn from our empirical work is that policies aimed at enhancing the flexibility of the labour market to boost firms' competitiveness, if increasing the precariousness of employment, may also produce sides effects on the wellbeing and mental health of employees, ultimately having consequences on firms' productivity and health care costs.