Causal Effect Of Unemployment Research Articles

Unemployment, unemployment duration, and health: selection or causation?

This study aims at disentangling the causal effects of unemployment on physical and mental health from the selection of the unhealthy into unemployment. To identify causal effects, it explores hypotheses concerning how physical and mental health deterioration gain additional momentum with a longer duration of unemployment. In contrast, mere selection into unemployment implies time-constant effects of unemployment on physical and mental health. Fixed-effects models are applied to data from the German Socio-Economic Panel (GSOEP, 2002-2014, 74,572 observations). Pointing at causal effects of unemployment, the findings show that physical health does not deteriorate before, during or immediately after the period in which individuals lose their jobs, but that deterioration gains momentum later. The effect further depends on age at transition to unemployment. In contrast, a large part of the poorer mental health of the unemployed might be due to the selection of the unhealthy into unemployment; mental health declines even before job loss. Only for people who experience unemployment early in life, mental health deterioration gains some momentum in the time after the transition, indicating a (weak) causal effect of unemployment on mental health for younger individuals.

Why are the unemployed in worse health? The causal effect of unemployment on health

We analyse the effect of unemployment on health using information from the German Socio-Economic Panel of the years 1991–2008. To establish a causal effect we rely on fixed-effects methods and plant closures as exogenous entries into unemployment. Although unemployment is negatively correlated with health, we do not find a negative effect of unemployment due to plant closure on health across several health measures (health satisfaction, mental health, and hospital visits). For this subgroup of the unemployed, unemployment does not seem to be harmful and selection effects of ill individuals into unemployment are likely to contribute to the observed overall correlation between poor health and unemployment.