The impact of precarious employment on mental health: The case of Italy.

Although there has been a sizeable empirical literature measuring the effect of job precariousness on the mental health of workers the debate is still open, and understanding the true nature of such relationship has important policy implications. In this paper, we investigate the impact of precarious employment on mental health using a unique, very large data set that matches information on job contracts for over 2.7 million employees in Italy followed over the years 2007-2011, with their psychotropic medication prescription. We examine the causal effects of temporary contracts, their duration and the number of contract changes during the year on the probability of having one or more prescriptions for medication to treat mental health problems. To this end, we estimate a dynamic Probit model, and deal with the potential endogeneity of regressors by adopting an instrumental variables approach. As instruments, we use firm-level probabilities of being a temporary worker as well as other firm-level variables that do not depend on the mental illness status of the workers. Our results show that the probability of psychotropic medication prescription is higher for workers under temporary job contracts. More days of work under temporary contract as well as frequent changes in temporary contract significantly increase the probability of developing mental health problems that need to be medically treated. We also find that moving from permanent to temporary employment increases mental illness; symmetrically, although with a smaller effect in absolute value, moving from temporary to permanent employment tends to reduce it. Policy interventions aimed at increasing the flexibility of the labour market through an increase of temporary contracts should also take into account the social and economic cost of these reforms, in terms of psychological wellbeing of employees.