DP13099 Feeling Useless: The Effect of Unemployment on Mental Health in the Great Recession
This article documents a strong connection between unemployment and mental
distress using data from the Spanish National Health Survey. We exploit the
collapse of the construction sector to identify the causal effect of job
losses in different segments of the Spanish labour market. Our results
suggest that an increase of the unemployment rate by 10 percentage points
due to the breakdown in construction raised reported poor health and mental
disorders in the affected population by 3 percentage points, respectively.
We argue that the size of this effect responds to the fact that the
construction sector was at the centre of the economic recession. As a
result, workers exposed to the negative labor demand shock faced very low
chances of re-entering employment. We show that this led to long
unemployment spells, stress, hopelessness and feelings of uselessness. These
effects point towards a potential channel for unemployment hysteresis.