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

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Abstract

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.

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Fig. 1

Source: author calculations based on Model V in Table 3

Fig. 2

Source: author calculations based on Model VII in Table 4

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Notes

  1. In contrast to other countries, in Germany, the unemployed are not dropped from public health insurance. However, in recent decades, the catalogue of public health insurance benefits has been restricted to the basics [10]. Therefore, many people have to purchase additional insurance policies [11, 12] or pay for some therapies themselves.

  2. Some shortcomings of this approach have been discussed in the literature: Factory closures are very infrequent events, a job loss caused by a plant closure may have different mental consequences than losing a job due to an individual’s performance [49: 362], and those who lost their jobs due to a plant closure constitute a very selected group [49: 362, 46: 1397, 50].

  3. If the progressive illness has not yet a heavy impact on work performance, the discussed first scenario for an anticipated decline in health holds.

  4. Persons on parental leave or in military service are treated as being employed because these people later may be at risk of unemployment during the panel.

  5. Note that in some cases, within the 24 months between two waves employment might not be directly followed by unemployment but by some months of inactivity before starting a new job search.

  6. As is discussed in Sect. “Robustness checks”, the results of the analysis stay qualitatively unchanged, when the analysis is restricted to only one period of unemployment per respondent.

  7. For the application in the GSOEP, the SF12v2 has been slightly modified (see [55] for details).

  8. See [48: Appendix A2 on page 556] for an English documentation of the questionnaire.

  9. Please note that when allowing only one spell of unemployment, physical health deteriorates significantly at the observation preceding the unemployment spell, indicating a selection effect. See Sect. “Robustness checks” for a discussion.

  10. See “Hypotheses and methodological approach” and “Discussion” for limitations to this conclusion.

  11. The discussed effects rely on a sufficient number of cases, even at high durations of unemployment. As documented in Table 2, there are 56 observations with an unemployment duration between 9 and 12 years. And, as documented in Sect. “Robustness checks”, there are highly significant and strong effects for high unemployment durations when using a dummy-system.

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Acknowledgements

I would like to thank Nico Seifert, the Thomas Klein working group at the Max Weber Institute in Heidelberg and participants in several presentations for their useful comments on earlier versions of this paper.

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  1. Max Weber-Institute of Sociology, University Heidelberg, Bergheimer Straße 58, 69115, Heidelberg, Germany

    Johannes Stauder

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Stauder, J. Unemployment, unemployment duration, and health: selection or causation?. Eur J Health Econ 20, 59–73 (2019). https://doi.org/10.1007/s10198-018-0982-2

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