Mental Health and Economics
Mariya Melnychuk
The Department of Applied Health Research, UCL
14-01-2015
Dimensions
• Economic fluctuations and mental health
– The effect of economic downturns on experiencing depression and
anxiety
– Taking into account labour market status (employed vs. unemployed),
gender and marital status
• Mental health and economic decisions
– Financial investments (buying/selling risky assets)
– Retirement decisions
Background
• 20% of adult Europeans experience at least one mental
problem every year (WHO)
– CVD 16%, cancer 16%, respiratory diseases 8%, diabetes 2%
– anxiety and depression are the most common mental illness in EU
– by 2020, depression is expected to be the highest ranking illness in the
developed world
• Cost of mental illness in EU is 3-4% of GNP, mainly through
productivity losses (European Commission report, 2004).
• Mental disorders are a leading cause of early retirement and
disability pension
Economic downturns and mental health
• Direct negative effect
– for employed: increased anxiety because of the risk of losing the job
– for unemployed: probability of finding a job decreases
• Indirect adverse effect
– employment is a social standard/norm
– unemployment is an undesirable deviation
– when more people are unemployed, not following the norm becomes less suppressive
and the direct effect could be moderated
• Results:
– Married employed men, married employed and unemployed women are more likely to
suffer from depression or anxiety
– BUT single unemployed men are at lower risk of mental problems compared to all above
groups.
Economic downturns and mental health:
Explanation
• For men
– married men could have depressive thoughts about their working prospects as the
aggregate unemployment increases and be uncertain about the financial support for
their families.
– society seems to be more tolerant with respect to unemployed single men when
unemployment is widespread.
• For women
– among employed, single women are at higher risk of mental illness compared to married
women.
– this difference could be attributed to greater economic resources associated with
marriage.
– relative power in the family related to employment may explain why unemployed
married women suffer the most in recessions.
Mental health and economic decisions:
Motivation
• Depression could affect perception of reality:
Graph 1. Severe depression case
Graph 2. Moderate depression case
60.0
60.0
50.0
50.0
40.0
40.0
30.0
Non-depressed
30.0
20.0
Depressed
20.0
10.0
10.0
0.0
1
2
3
4
5
0.0
1
2
3
4
5
• Consider situations where individuals’
’ attitudes matter for economic
choices:
– investment decisions (financial assets)
– retirement decisions
Mental health and economic decisions:
Retirement
• Demographic changes and low participation rate of older
workers threatens the sustainability of pension system.
• In past decades countries implemented changes in retirement
system that induced increased incentives to postpone
retirement
• These incentives proved to be successful …….
Mental health and economic decisions:
Retirement
• Trend towards early retirement is reversed, but further
increases in participation required.
• One of the obstacles is health: employment rates of those in
poor health much lower (even at ages prior to retirement)
• This holds also for those with mental problems
Mental health and economic decisions:
Retirement
• Look at retirement behavior of mentally ill and contrast this
with behavior of workers w/o mental problems
• We find that there are differences => Can health and other
observable background characteristics explain this?
• Do those with mental health problems respond similarly to
financial incentives?
(key policy instrument)
• Data are from waves 2002-03 and 2004-05 from the English
Longitudinal Study of Ageing (ELSA)
Retirement transition rates are higher for
those with mental health problems
Figure 1. Transition into retirement
50
45
40
Transition rate
35
30
With mental problems
25
Without mentla problmes
20
15
10
5
0
50-54
55-59
Age group
60-64
• Those who have mental health problems have different
retirement probabilities
• Those who have mental health problems appear not to
respond to financial incentives
• Why?
a) Differences in Life Expectancy?
b) Could it be that they do not understand the financial
trade-offs ?
c) They just have different leisure-income weights ?
Summing up
• Mental problems increasingly important (prevalence rates up
to 20%)
• There exist structural differences in employment rates and
retirement patterns of between mentally ill and others
• Moreover, mentally ill seem to respond differently to financial
incentives
• We examine whether differences in life expectancies or
cognitive ability (numeracy) can explain this
• The answer is: Not fully, structural differences remain and
(lack of) incentive effects unaltered