The impact of employment transitions on health in Germany: A difference-in-differences propensity score matching approach

This article investigates the effects of transitions between employment and unemployment on health. It also addresses the question of whether or not the widespread use of temporary employment has altered the positive health effects of employment. Drawing on data from the German Socio-Economic Panel for the period 1995-2010, we apply difference-in-differences propensity score matching to identify the direct causal effects of unemployment and reemployment on psychological and physical health. This combination of two approaches towards causal inference controls for both unobserved fixed effects and observable differences in a flexible semi-parametric specification. Our sample includes persons between the ages of 16-54 who have at least experienced one respective employment transition (treatment groups) or are continuously employed or unemployed (control groups). The results show that only psychological but not physical health is causally affected by the respective employment transitions. Specifically, the effects of unemployment and reemployment are of similar size, highlighting the importance of reemployment in compensating unemployment’s negative impact on psychological health. In contrast, health selection and confounding seem to be important determinants of the cross-sectional association between unemployment and physical health. Carrying out separate analyses for permanent and temporary workers, we shed new light on the health effects of temporary employment. It has been argued that the rise of temporary employment has introduced a new inequality in the world of work, blurring the line between employment and unemployment. However, contrary to our expectations we find that both employment transitions have effects of a similar size for permanent and temporary workers. In sum, our results highlight two points. First, longitudinal research is needed to properly evaluate the health effects of unemployment, reemployment, and temporary employment. Second, compared to temporary employment, unemployment is still the greater threat to individuals’ psychological health. Highlights: • Unemployment and reemployment have substantial effects on psychological health. • In contrast, physical health is not altered by the respective employment transitions. • The effects on health are of similar size for permanent and temporary workers. • Compared to temporary employment, unemployment is still the greater threat to individuals’ health. • This study advances causal inference by using difference-in-differences propensity score matching