Mental Health Disability and Labor Market Participation

Vollständiger Abstract

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This paper presents the first application of stochastic frontier regression and bivariate probit selection methods to estimate reservation wages for individuals with psychiatric disabilities. Using Employment Intervention Demonstration Program data (n = 1.648), we compare these methods among Supported Employment participants. The stochastic frontier approach yields an average reservation wage of $5.25 per hour, while bivariate probit produces $4.50 per hour. Reliability tests indicate that bivariate probit shows greater consistency with labor search theory predictions. Because the sample consists of Supported Employment participants, the findings should not be generalized to all people with psychiatric disabilities. Our findings suggest that disability benefits may facilitate rather than hinder labor market participation until wealth reaches higher levels, with important implications for employment policy.