Job Loss, Retirement and the Mental Health of Older Americans

Abstract

We examine the effects of involuntary job loss and retirement on the mental health of older Americans using the Health and Retirement Surveys (1992-2002). Potential endogeneity may arise due to reverse causality or latent individual effects or both. Using several econometric techniques we obtain consistent and efficient estimates, and show that involuntary job loss impacts mental health negatively, whereas retirement has a positive effect on psychological well-being. Furthermore, we explore the role of re-employment on the mental health status of individuals who have retired or suffered involuntary job loss. We find re-employment improves the mental health status of both retirees and involuntary job loss sufferers. Perhaps most importantly we document that the decline in mental health status due to involuntary job loss is fully reversed for those individuals who subsequently re-enter the job market. Additionally, separation or divorce, and formation of couple household are found to be endogenous. The magnitude of mental health impacts from job market changes is similar to that experienced after death of a child, though the impacts resulting from the death of a spouse are substantially larger.

Keywords: Mental health, Unemployment, Involuntary job loss, Retirement, Re-employment, Endogeneity

JEL Classification: I12, J26, J64