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The effect of mental health on employment: evidence from Australian panel data

Frijters, Paul, Johnston, David W. and Shields, Michael A. (2014) The effect of mental health on employment: evidence from Australian panel data. Health Economics, 23 (9). pp. 1058-1071. ISSN 1057-9230

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Identification Number: 10.1002/hec.3083


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.

Item Type: Article
Official URL:
Additional Information: © 2014 John Wiley & Sons, Ltd.
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HC Economic History and Conditions
R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
JEL classification: J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement
Date Deposited: 07 Feb 2018 15:47
Last Modified: 20 Oct 2021 00:30

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