Labour market participation and productivity in Malta : the role of mental health

Abstract

This study seeks to examine the intricate nexus between mental health and labour market outcomes, placing special emphasis on labour participation and productivity. The relevance of this research to the Maltese context is paramount, given that the labour market constitutes our primary natural resource. The primary objective is to tackle the challenge of untangling the intricate interplay between mental well-being and the dynamics of the labour market. To achieve this, an instrumental variable (IV) approach is adopted. This method allows this study to account for the bidirectional causality that exists between mental health and labour market outcomes, while simultaneously mitigating the influence of unobservable individual characteristics that may simultaneously shape both of these domains. In the context of Malta, where the workforce plays a pivotal role as Malta’s primary natural resource, understanding how mental health impacts labour participation and productivity is of utmost importance. The findings reveal a connection between mental well-being and labour market participation. Specifically, the evidence shows that a decline in mental health exerts a substantial adverse impact on the likelihood of active engagement in the labour market and productivity. This study ultimately highlights the profound implication of mental health on labour market outcomes, particularly in terms of lost productivity and participation. The findings resonate with the broader literature and studies on the role of mental health in shaping economic participation, underscoring the importance of proactive measures to promote mental health in the context of labour market policies and interventions.