The Effect of Changing Mental Health on Unemployment Duration and Destination States after Unemployment

45 Pages Posted: 5 Sep 2010

See all articles by Michael Rosholm

Michael Rosholm

Aarhus University - Department of Economics; IZA Institute of Labor Economics; Amternes og Kommunernes Forskningsinstitut (AKF)

Henrik Lindegaard Andersen

Danish Institute of Governmental Research

Date Written: July 13, 2010


There is a large literature showing that unemployment has a negative effect on mental health, but little evidence exists on how mental illness affects the unemployeds’ chances of re-employment or the risk of labour market exit. We study how purchase of pharmaceutical products for severe mental illnesses during unemployment affects re- employment and labour market exit probabilities. Within the framework of a multivariate duration model we apply the ‘timing-of-events’ method, which explicitly makes use of the information that pharmaceutical treatment can begin at different points of time during an unemployment spell. In the absence of instrumental variables this method allows for causal inference in presence of unobserved heterogeneity, but at the cost of strong assumptions. The basis for our analysis is state-of-the-art register-based data, which gives insight on the timing, type, and volume of drug purchase as well as labour market histories for a random sample of the Danish population. We find a significant and strong negative effect of periods with drug treatment on the employment chances. During the treatment with drugs, the job-finding rate is reduced substantially relative to what it would have been in absence of a drug treated mental illness. Importantly, our results not only show that drug treated mental illness prolongs the unemployment duration, but it also increases the labour market exit rate.

Keywords: Unemployment, Mental Health, Duration Model, Administrative Register Data

JEL Classification: I10, J64

Suggested Citation

Rosholm, Michael and Andersen, Henrik Lindegaard, The Effect of Changing Mental Health on Unemployment Duration and Destination States after Unemployment (July 13, 2010). Available at SSRN: or

Michael Rosholm

Aarhus University - Department of Economics ( email )

University Park
DK-8000 Aarhus C
+45 89 42 15 59 (Phone)
+45 86 13 63 34 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Amternes og Kommunernes Forskningsinstitut (AKF)

Nyropsgade 37
Copenhagen, DK-1602

Henrik Lindegaard Andersen (Contact Author)

Danish Institute of Governmental Research ( email )

Købmagergade 22
Copenhagen K, 1150
+45 33344371 (Phone)

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