The mental health costs of job loss, job insecurity and skill mismatch

by Alexandra Michielsen, Jack Buckley

The mental health costs of job loss, job insecurity and skill mismatch

New research by the e61 Institute shows that Australians’ mental health changes with their employment circumstances. Key findings from the research:

  • losing your job causes the same deterioration in mental health as sustaining a serious illness or injury
  • JobSeeker payments helped to improve mental health, but people on JobSeeker still had worse mental health than employed people
  • getting a job which is well-matched to your skills results in a larger boost to mental health than getting married.

The Research Note, The mental health costs of job loss, job insecurity and skill mismatch, looks at the links between job transitions and mental health using detailed analysis of individual-level data.

The research finds that self-reported mental health falls by 1.7% in the year prior to job loss, and 2.9% in the year that a worker is fired or made redundant.

In the context of the COVID-19 recession, the research also finds that JobSeeker payments helped improve mental health for unemployed people. However, people who received payments still reported lower mental health on average than employed people.

The analysis shows that the effect of job loss on mental health is mostly driven by non-financial factors, such as lower self-esteem and lost social connections.

The research also found that when workers move to a job that is well-matched to their skills, they experience a 2.0% average increase in mental health.

The analysis uses longitudinal data to compare people who experienced a change in their work circumstances to those who did not, controlling for many individual characteristics.

“While the labour market has rebounded strongly, significant structural issues remain, including job insecurity and skills mismatches. Policies such as JobSeeker can help to mitigate the mental health costs of unexpected job loss but there are question marks over whether it is enough,” said Gianni La Cava, Research Director.

“We need to focus on policies that allow for job mobility while limiting the costs of job loss.”

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