The effect of mental health on employment: accounting for selection bias

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Bryan M, Rice N, Roberts J, Sechel C The Effect of Mental Health on Employment: Accounting for Selection Bias

The disability employment gap is an issue of concern in most Western developed economies. This paper estimates the influence of mental health on the probability of being in employment for prime age workers in England and Wales. We use longitudinal data and employ recently developed techniques, which use selection on observable characteristics to provide information on selection along unobservable factors to estimate an unbiased effect of changes in mental health.

Our results suggest that selection into mental health is almost entirely based on time-invariant characteristics, and hence fixed effects estimates are unbiased in this context. Our preferred specifications indicate that transitioning into poor mental health leads to a reduction of 1.4 percentage points in the probability of employment. This is approximately 9 per cent of the raw employment gap in our sample; and this relatively small effect is comparable to estimates from studies around the world that use similar methods.

However, it is substantially smaller than the typical instrumental variable estimates, which dominate the literature, and often provide very specific estimates of a local average treatment effect based on an arbitrary exogenous shock. These findings should provide some reassurance to practitioners using fixed effects methods to investigate the impacts of health on work. They should also be useful to policy makers as the average effect of mental health on employment for those whose mental health changes is a highly relevant policy parameter.

Download 'Mental health and employment: a bounding approach using panel data' Sheffield Economics Research Paper 2020006 (PDF, 1041KB) 

Presentations:

  1. Department for Work and Pensions sponsored Work Pensions and Labour Economics Study Group (WPEG) Annual Conference. Sheffield. 30 July 2019
    Download the slides from this presentation (PDF 390KB)
  2. Health is Everyone’s Business: Centre for Decent Work, University of Sheffield. DWP consultation on measures to reduce ill health-related job loss. 4 September 2019
  3. 28th European Workshop on Econometrics and Health Economics. Faculty of Economics and Business (FEB), KU Leuven 11-14 September 2019.
  4. Sheffield Solutions Seminar, Department for Work and Pensions, Sheffield 24 October 2019
  5. Department of Economics, University of Sheffield, Seminar 12 November 2019

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