HEDG Working Papers
August 15, 2015
Previous studies on the relationship between income and mental health focus on lottery winners and find that positive income shocks may improve mental health. We focus on low-wage earners, who have a higher propensity of experiencing mental health problems, and exploit the policy experiment provided by the introduction of the 1999 UK minimum wage to identify the impact of a wage increase on mental health. Combining matching techniques with a series of difference-in-differences models we find that the minimum wage had only limited short-run effects on the mental health of those affected by the minimum wage. Our estimates do not appear to support earlier findings that indicate that monetary shocks improve an individual's mental health. Several robustness checks controlling for measurement error and treatment and control group composition appear to confirm our main results. Our findings suggest that policies aimed at improving the mental health of low wage earners should consider either the non-wage characteristics of employment or larger wage increases.