Mental Health and Labour Supply: Evidence from Mexico’s Ongoing Violent Conflicts

In Mexico, conflicts between drug-trafficking organisations result in a high number of deaths and immense suffering among both victims and non-victims every year. Little scientific research exists which identifies and quantifies the monetary and non- monetary consequences of ongoing violent conflicts on individuals. Using the Mexican Family Life Survey for 2002 and 2005, the causal effect of mental health (symptoms of depression / anxiety) on the extensive and intensive margin of labour supply for working- aged men and women is estimated. Measures of the ongoing drug-related violent conflicts both at the macro level using intentional homicide rates by region, and at the micro level indicated by the presence of armed groups in the neighbourhood, serve as instruments for mental health. The results show a significant adverse impact of the conflicts on anxiety for men and women. Based on IV-Tobit model results, a worse mental health state decreases individual labour supply strongly and significantly for men. The findings demonstrate that Mexico’s population not only suffers from the violent conflicts between drug-trafficking organisations by anxiety or even depression but also indirectly from less household income through less work which in turn has consequences for Mexico’s social development and economic growth.