Abstract

A key finding of the groundbreaking study on unemployment in Marienthal (Austria) in the 1930s is that prolonged unemployment can lead people to become increasingly apathetic and less likely to seize available job opportunities. Since then, numerous further studies have highlighted the various detrimental effects of unemployment on people’s mental state and mental health. According to administrative data from German health insurers, which was last analyzed in 2011, 40.2% of people receiving social benefits in 2011 had a diagnosed mental illness. This is roughly twice the share of people with mental health issues in the employed population. Furthermore, the proportion of individuals with mental health issues receiving social benefits steadily rose from 32.6% in 2007 to 40.2% in 2011. The most common mental health issues faced by unemployed individuals are neurotic stress disorders and somatic symptom disorders (21.9%), affective disorders (17%), and substance-induced behavioral disorders (16.3%). One tool used by policymakers to reintegrate individuals who are far from the labor market is wage subsidies. Wage subsidies aim to reduce entry barriers into the labor market, thereby reintegrating the supported individuals and facilitating social participation. Numerous international studies have examined the impact of wage subsidies on the mental health and well-being of participants and generally found relatively large positive effects. However, no study has yet examined to what extent these positive effects on mental health can also be achieved in individuals with severe mental health issues. In fact, one might argue that while wage subsidies have beneficial effects on the mental health of the general unemployed population, they have the potential to worsen the mental health of individuals with mental health issues due to additional stress. This could be particularly true if participation is enforced under threat of sanctions. Therefore, this project aims to investigate the effects of wage subsidies on perceived health and subjective well-being of individuals with pre-existing mental health conditions, using wage subsidies under the Participation Opportunities Act as a case study. The Participation Opportunities Act includes two new funding programs under SGB II: "Integration of Long-term Unemployed" (§16e), hereafter EvL, and "Participation in the Labor Market" (§16i), hereafter TaAM. Both programs aim to improve employability and social participation through the promotion of socially insured employment relationships, with the TaAM measure focusing more on participation. The target groups of the two measures differ in that TaAM is aimed at individuals further removed from the labor market than the target group of EvL. To evaluate the impact of these measures, specially collected survey data was linked with existing administrative data to estimate causal effects of the funding programs using the matching method. The relatively large number of supported individuals also allows for an investigation of the subgroup of individuals with mental health conditions. This project aims to use this high-quality data to address a question that has so far been almost unexplored: "Can wage subsidies, as implemented under the Participation Opportunities Act, represent a meaningful social intervention to improve the mental health of individuals with mental health conditions?"