The Effect of Employment on Mental Health for Disabled Workers: Evidence from a Policy Reform in the Netherlands

Abstract

We study to what extent employment status affects mental health for persons with a workdisability. Our empirical strategy is built around a unique exogenous shock in job probabilitycaused by the 2015 reform of the activation policy for disabled workers in the Netherlands.We find that being employed significantly reduces the use of mental health care and the use ofnon-medical home care targeted at people suffering from psychological distress. Relative to thebaseline average in our sample of disabled persons, the estimates translate into a reduction of careuse by about 70 percent. Our results further indicate that the beneficial impact of employmenton mental health does not depend on whether someone holds a sheltered job or is in supportedemployment in the open labor market. We find suggestive evidence that improvements insocio-economic security are an important driving force behind the health-improving effect ofemployment.

Keywords: work disability, activation policy, mental health