On the effects of active labour market policies among individuals reporting to have severe mental health problems

Abstract On the one hand, unemployment is known to have detrimental effects on individuals' mental health. On the other hand, poor mental health reduces re‐employment chances quite drastically, creating a vicious cycle. Active labour market policies (ALMPs) such as training programs or wage subsidies have been shown to ameliorate negative effects on mental health and improve labour market integration on average for the general unemployed population. In the context of individuals with severe mental health issues, however, it is unclear whether these interventions can be expected to deliver similar positive effects. In fact, one may argue that they have the potential to worsen employment prospects of individuals by adding additional stress to their pre‐existing mental health problems. Hence, this paper estimates the long‐term causal effects of ALMPs on the labour market integration of individuals with self‐reported severe mental health issues and compares estimates to individuals without such issues using unique combined survey and administrative data. Effects are estimated using the innovative double machine learning method and show that ALMPs do not only improve labour market integration of unemployed individuals with severe mental health issues, but they do so more effectively than for other unemployed individuals.