The Short-Term Effect of Depression on Labor Market Outcomes

We estimated the short-term effect of depression on labor market outcomes using data from the 2004-2009 Medical Expenditure Panel Survey. After accounting for the endogeneity of depression through a correlated random effects panel data specification, we found that depression reduces the likelihood of employment. We did not, however, find evidence of a causal relationship between depression and hourly wages or weekly hours worked. Our estimates are substantially smaller than those from previous studies, and imply that depression reduces the contemporaneous probability of employment by 2.6 percentage points. In addition, we examined the effect of depression on work impairment and found that depression increases annual work loss days by about 1.4 days (33 percent), which implies that the annual aggregate productivity loses due to depression-induced absenteeism range from $700 million to 1.4 billion in 2009 USD.