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2 Econometric speci…cation
Let D ijt be an unobservable continuous latent variable which measures mental problems.
We also de…ne two dummies, E ijt and U ijt , one for being employed and another for being
unemployed and interact each of them with the gender-speci…c unemployment rate in a
region j at time t, UR jt . We then consider the following model to evaluate the e¤ect of
economic conditions on mental problems:
D ijt = t + Q t + R j + E ijt UR jt + U ijt UR jt + U ijt + X 0 ijt + u ijt (1)
where t is a year-speci…c intercept, Q t is a quarter-speci…c intercept, R j is a region
…xed-e¤ect. Terms E ijt UR jt and U ijt UR jt are the interactions of E ijt and U ijt with
UR jt and state for the e¤ects of the regional unemployment rate for the employed and
unemployed respectively. X ijt is a vector of personal characteristics of individual i living
in the region j at time t, u ijt is a disturbance term.
Economic conditions in‡uence employed people’s mental problems through . If a
bad economic situation, i.e. a high regional unemployment rate, induces depression,
should be positive, > 0. Well-being literature (Clark et al. 2009, 2010) emphasizes that
employed people in times of high unemployment experience greater job insecurity due
to more pessimistic expectations about their own employment opportunities or they may
remain in unsatisfactory jobs that they would otherwise have likely left had labour market
conditions been better. These circumstances might induce depression and anxiety. For
example, Hartley et al. (1991), in their survey on job insecurity, found that depression
increases proportionately to the level of job insecurity. Based on the National Alliance
on Mental Illness Survey (2009), Roy-Bujnowski (2011) reports that employment in an
uncertain economy is not always a protective factor against mental health problems. The
employed could experienced involuntary changes in the employment, such as pay cuts or
reduced hours. As a result, these individuals are likely to su¤er depression or some other
form of a mental health problem.
The situation is di¤erent for the unemployed. On the one hand, they could also be
more depressed in bad times, as their chances of …nding a job lowers substantially. On
the other hand, the social pressure on the unemployed is lower when there is greater
unemployment. As Clark (2003) has suggested, unemployment may have less impact
on the unemployed the more they see of it around them, as the stigma from their own
unemployment is then reduced. One explanation could be that it is easier for the unemployed
to establish social connections when others in the local area are also unemployed
(Kessler et al. 1988). There could also be greater emotional support for the unemployed,
as more people share the same economic situation. As Jackson and Warr (1987) suggest
lower levels of psychological distress among unemployed from areas of chronically high
unemployment compared to unemployed living in areas of low unemployment perhaps
re‡ect better adaptation through networks, community solidarity and lower costs of living
in areas with higher unemployment. Cohn (1978) …nds that the individual feel fells
self-dissatis…ed to a smaller extent if she can attribute her change in employment status
(becoming unemployed) due to some external cause, and the high level of regional unemployment
might be such an external cause. Hence we expect the e¤ect for unemployed
(), at least for some groups, to be smaller than , or even negative, < 0.
Ideally, we would like to know which individuals became unemployed not as a result
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