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 Mental health problems are widespread among the general population: at any point in time 15-20% of the working age population is affected by a common mental health problem, such as anxiety or depression (OECD, 2014). The need to alleviate the (economic) burden of mental ill-health requires a proper understanding of how mental health problems are distributed across the population. In this project we (i) empirically investigates differences in the life cycle mental health developments across various dimensions of socioeconomic status (e.g. wealth, income, education, occupation an labor market status) and (ii) develop an economic theory of mental health that can lead to new testable predictions regarding health disparities.

The first part of the paper presents stylized facts on the empirical life cycle trajectories of mental health using longitudinal data from the Netherlands. On average mental health scores slightly improve over working life and mental health scores are higher for those with higher income. The data do not indicate significant differences in mental health developments across work types (e.g. between manual and non-manual jobs). However, a clear U-shaped association between mental health scores and unemployment exists over the life cycle, regardless of income level (also when controlling for individual fixed effects). This U-shape contrasts sharply with the relatively stable mental health scores of individuals with jobs, and has not been reported previously. The second part aims to incorporate the empirical findings in a comprehensive theoretical framework. We present a conceptualization of mental health as a form of capital to develop a theory of mental health based on the Grossman (1972) framework. Here, 'mental health behavior' consists of an individual’s decisions to (i) invest in mental health and (ii) accept job-related psychosocial stress, which yields a wage premium but negatively affects mental health. Current challenges in this work include the need to extend the model so that it incorporates psychosocial stress from other sources than work, such as unemployment, which the empirical results indicate to be highly relevant.