July 2020

IZA DP No. 13518: A Structural Analysis of Mental Health and Labor Market Trajectories

We conduct a joint dynamic analysis of individual labor market and mental health outcomes. We allow for a two-way interaction between work and mental health. We model selection in and out of employment as well as between jobs on a labor market with search frictions, where we account for the level of exposure to stress in each job using data on occupational health contents. We estimate our model on British data from Understanding Society combined with information from O*NET. We produce structural estimates of health dynamics as a function of job characteristics and of the effects of health and of job stress content on labor market decisions. We use our model to quantify the effects of job loss or health shocks that can propagate over the life cycle through both health and work channels. We also estimate the (large) values workers attach to health, employment or non-stressful jobs. Lastly, we investigate the consequences of structural labor market changes by evaluating the impact on health, employment and inequality of changes in the distribution of job health contents.