THE CAUSAL IMPACT OF FEAR OF UNEMPLOYMENT ON ∗ PSYCHOLOGICAL HEALTH Arndt Reichert Harald Tauchmann RWI RWI † January 18, 2012 PRELIMINARY – do not cite without permission of the authors Abstract We analyze the effect of job insecurity on psychological health. We extend the group of peo- ple being affected to employees who have insecure jobs to account for a broader measure of the mental health consequences of potential unemployment. Using panel data with staff reductions in the company as an exogenous source of job insecurity, we find that an increase in fear of un- employment substantially decreases the mental health status of employees. Quantile regression results yield particularly strong effects for individuals of already poor mental health. JEL codes: I10, I18, J28, J65 Keywords: fear of unemployment, mental health, job insecurity, staff reduction, labor market dynamics ∗The authors are grateful to Alfredo R. Paloyo, Jorn-Steffen¨ Pischke, Sandra Schaffner, Juliane Scheffel, and to partici- pants at the 2010 European Society for Population Economics Conference and the Spring Meeting of Young Economists, as well to participants at the 2011 meeting of the German Health Economics Association for helpful comments. †Address for correspondence: Arndt Reichert, RWI, Hohenzollernstr. 1-3, 45128 Essen, Germany. Email address:
[email protected]. 1 Introduction The interdependence of labor market dynamics and health has been well established in the eco- nomic literature. Empirical research based on aggregated data dates back to the nineteen-seventies, most notably to the research conducted by Brenner (see, e.g., Brenner, 1971, 1979, 1987). He re- ports a positive correlation of fluctuations in the unemployment rate with different health indi- cators, such as the prevalence of schizophrenia, heart disease mortality, and aggregate mortality.