The Effect on Mental Health of Retiring During the Economic Crisis

Abstract

This paper investigates the causal impact of retirement on late-life mental health, a growing concern for public health, since major depressive disorders are the second leading cause of disability. We shed light on the role of economic conditions in shaping the effect of retirement on mental health by exploiting time and regional variation in the severity of the economic crisis across 10 European countries during 2004-2013. We use data from four waves of the Survey of Health, Ageing and Retirement in Europe and address the potential endogeneity of the retirement decision to mental health by applying a fixed effects instrumental variable approach. The results indicate that retirement improves the mental health of men but not that of women. This effect is stronger for blue collar men working in regions that have been severely hit by the economic crisis. These findings may be explained by the worsening of working conditions and the rise in job insecurity stemming from the economic downturn: Under these circumstances, exit from the labour force is perceived as a relief.