4 Causality in the Relationship between Mental Health and Unemployment

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. Sub-sequent 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 fi nancial 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 work-ers ’ skills are not fully portable across fi rms, occupations, and indus-tries (Goldsmith and Veum 2002). Social scientists also assert that unemployment lasting more than a few weeks is damaging to mental health. For instance, two meta-analytic studies (McKee-Ryan et al. 2005; Paul and Moser 2009) repor