Mental health and labour supply: Evidence from China

This paper studies the effect of mental health on employment and labour-force participation in China using nationally-representative China Family Panel Studies (CFPS) data. Utilising CFPS waves 2012, 2016, and 2018, we construct consistent measures of labour supply and mental health using the Center for Epidemiological Studies Depression (CES-D) scale. The panel structure enables us to control for unobservable time-invariant individual heterogeneity, in contrast to most prior studies from developing countries. To address concerns about reverse causality and omitted time-varying factors, we complement fixed-effects estimates with (i) Oster (2019) coefficient-stability bounds and (ii) robustness checks using respondents' reported reasons for non-employment. Our estimates reveal that experiencing severe depressive symptoms reduces the likelihood of employment and labour-force participation by, on average, 1.8-1.9 and 1.3-1.4 percentage points, respectively. These estimates are similar in magnitude to those from advanced economies, despite China substantially differing in terms of its development, labour market structure, and mental health provisions. Within China, the estimated effects are concentrated almost exclusively among older male workers, with limited evidence of comparable impacts for the broader prime-age workforce.