Unemployment and Health

This study disentangles causal effects of unemployment on physical and mental health from selection and compositional effects. With this end, it explores hypotheses about how a causal effect will gain momentum with longer duration of unemployment. Fixed-effects models are applied to data from the German Socioeconomic Panel (GSOEP, 2002-2014). Pointing at a causal effect of unemployment, it is shown that physical health deteriorates not before or directly in the period of dismissal, but that deterioration gains momentum only after dismissal. In contrast, a large part of the worse mental health of unemployed might be due to selection: Mental health reduces even before dismissal. Only for those who face unemployment early in their life-course mental health additionally worsens after dismissal, pointing at a causal effect. The effects further depend on age at dismissal.