The effect of unemployment on the mental health of spouses - evidence from plant closures in Germany

This paper is the first to estimate the effect of one partner's entry into unemployment on the mental health of both spouses in Germany. In order to give the estimates a causal interpretation, this study focuses on an exogenous entry into unemployment (plant closure) and applies a regression-adjusted semiparametric difference-in-difference matching strategy, which is robust against selection on observables and time-invariant unobservables. About one year after the plant closure, unemployment decreased mental health by 25% of a standard deviation for the unemployed individuals themselves and by 23% of a standard deviation for their spouses. The results are robust over various matching specifications and different choices of the conditioning variables. Furthermore, this paper shows that mental health does not follow a different trend for treated and matched controls before the plant closure, adding additional credibility to the identification assumption.