Mental disorders and earnings in the short and the very long term

The mental wellbeing of adolescents and young adults has gained increasing academic attention, yet literature examining the lifetime labor market costs attributable to mental disorders remains scarce. This study documents the labor market deficits of mental disorders in both the short and the very long term using Finnish administrative data on hospitalizations, outpatient visits, and labor market outcomes. A history of psychiatric hospitalization is associated with approximately 50 % deficit in lifetime income relative to non-diagnosed control group, and this deficit is larger, the earlier that hospitalization occurs. Event study estimates suggest that labor market performance tends to deteriorate before the first psychiatric treatment, which undermines causal interpretations in the differencein-differences framework. Disorders related to acute stress are an exception, and do not exhibit pretrends; however, these disorders often originate from traumatic life-events that may also have direct impact on individuals’ work capacity, leaving the interpretation of the point estimates ambiguous.