Mental Health and Labor Market Outcomes

This dissertation consists of three essays on the relationship between mental health (the Center for Epidemiologic Studies Depression Scale) and labor market behaviors--employment, hours worked, wages, welfare program participation, and retirement. Using the National Longitudinal Survey of Youth 1979 cohort (individuals in their thirties), I find that high levels of psychological distress are associated with a lower probability of employment for men and women, fewer hours worked among men that work, and lower wages among women that work. Women with high levels of psychological distress were more likely to use welfare and had longer spells of recipiency. Using panel data techniques, these effects are examined across time and remain significant as far as five years in the future. The third chapter uses the Health and Retirement Survey to examine the relationship between psychological distress and early retirement. Among men and women aged 50 to 61 at baseline, those with above-average levels of psychological distress were more likely to not be working at baseline and, if working, to leave the labor force during the following six years. The analysis uses the Stock and Wise option value of work theoretical framework, and the retirement decision is modeled as a sequential probit, with decisions across years correlated through an individual random effect. Comparisons are made to the effect of physical health (a scale of self-reported functioning limitations), which has a larger impact on labor force withdrawal than psychological distress. The time series properties of physical and mental health are estimated by a model with a persistent component (following an autoregressive process of order one) and a transitory component. Physical and mental health have similar persistent components but mental health has a more variable transitory component. Physical and mental health have similar indirect effects on retirement, except for earnings where physical health has a larger effect. These differences are not large enough to explain the larger impact of physical health on retirement timing. The theoretical model leaves one explanation—that physical limitations have a larger negative impact on the non-pecuniary utility from work relative to retirement than psychological distress.

labor market behavior

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