The long shadow of labor market entry conditions: Intergenerational determinants of mental health

What determines long-term mental health and its intergenerational correlation? Exploiting variation in unemployment rates upon labor market entry across Australian states and cohorts, we provide novel evidence that the mental health of daughters is affected by the labor market entry conditions of their parents. In particular, a one standard deviation shock to the unemployment rate upon parental labor market entry worsens daughters’ mental health during adolescence by 11% of a standard deviation. This effect is accompanied by lower levels of satisfaction with their health, financial situation, safety, and overall life. A mediation analysis suggests that a sizable proportion (24%) of the impacts on the descendants’ mental health is explained by the worse mental health of their parents at mid-life. We do not detect any systematic impact of parental labor market entry conditions among sons. • Labor market entry conditions of parents impact the mental health of daughters. • About 24% of the effect is explained by poorer mid-life parental mental health. • This suggests an economic root to the intergenerational correlation in mental health.