Reconnecting to Work: Policies to Mitigate Long-Term Unemployment and Its Consequences

By Lauren D. Appelbaum | Go to book overview

4
Causality in the Relationship
between Mental Health
and Unemployment

Timothy M. Diette
Washington and Lee University

Arthur H. Goldsmith
Washington and Lee University

Darrick Hamilton
The New School

William Darity Jr.
Duke University

Unemployment is costly to society and individuals. Fifty years ago economist Arthur Okun (1962) demonstrated that for the United States in the postwar period, a 1 percent increase in the unemployment rate is associated with a 3 percent decline in gross national product. Subsequent work (Moosa 1997) revealed that this rule of thumb, known as Okun’s Law, closely characterizes most developed economies. At the individual level, unemployed persons who are laid off experience financial losses in the form of a drop in income, even if they are covered by UI. Moreover, when reemployed, their wages typically fall short of their previous level for a number of reasons, one of which is that workers’ skills are not fully portable across firms, occupations, and industries (Goldsmith and Veum 2002).

Social scientists also assert that unemployment lasting more than a few weeks is damaging to mental health. For instance, two metaanalytic studies (McKee-Ryan et al. 2005; Paul and Moser 2009) report that unemployed persons have substantially poorer psychological well

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