Working Paper

The Bilateral Relationship between Depressive Symptoms and Employment Status

Published: 2017

Non-Technical Summary:

Mental health and employment outcomes are inherently intertwined. People with poor mental health have lower levels of economic activity, lower earnings, and less stable employment. On the other hand, employment difficulties can undermine mental health; many who struggle to find meaningful work or who lose their jobs will experience poorer mental well-being as a result. But are mental health issues a cause or consequence of poor labor market outcomes?

Using nationally representative data, we estimate how transitions into and out of depressive episodes affect subsequent employment outcomes, including participation, employment and unemployment. Further, we address the potential for the reverse relationship to exist by estimating how changes in employment status affect the chances of developing severe depressive symptoms. We aim to shed light on the interplay between depression and the labor market, which is particularly important because the appropriate policy responses depend on whether depressive issues are a consequence or a determinant of poor labor market outcomes.

We find that severe depressive symptoms lead to economic inactivity by reducing labor force participation and employment, and increasing the likelihood of unemployment. We also find that severe depressive symptoms are partially a consequence of economic inactivity. Interestingly, our results show larger effects for men than women, indicating that men’s mental health is more closely tied to their employment outcomes than is women’s. Further, men seem to be more responsive to the shock of a bad event — either the onset of a depressive episode or the onset of unemployment. In contrast, women appear to be more affected by prolonged depressive symptoms.

The results imply that reducing the economic costs of mental illness is a challenge that is best tackled from both sides: improving mental health by promoting economic activity, minimizing employment disruptions and shortening unemployment spells, and reducing the barriers to employment and providing positive work environments for those with mental health issues. The results also call for a gendered approach to these policies.