Mental Health, Human Capital and Labor Market Outcomes

There are two primary treatment alternatives available to those with mild to moderate depression or anxiety: psychotherapy and prescription medications. The medical literature and our analysis suggest that in many cases psychotherapy, or a combination of therapy and medication, is more curative than medication alone. However, few individuals choose to use psychotherapy. To explain this pattern, we develop and estimate a dynamic model in which individuals make sequential medical treatment and labor supply decisions while jointly managing mental health and human capital. The results shed light on the rel- ative importance of several drawbacks to psychotherapy that explain patients’ reluctance to use it: (1) therapy has high time costs, which vary with an individual’s opportunity cost of time and flexibility of the work schedule; (2) therapy is less standardized than medication, which results in uncertainty about it’s productivity for a given individual; and (3) therapy is expensive. Preliminary results suggest that, while these factors affect treatment decisions, their role is small relative to the estimated utility cost of therapy, which may capture stigma, lack of information on the returns to therapy or other unobserved factors.