Impact of informal employment on individuals’ psychological well-being: microevidence from China

The number of workers engaged in informal employment in China has reached 200 million individuals, constituting a substantial contribution to the pursuit of high-quality development and the attainment of stable employment objectives. Nevertheless, the psychological well-being of informal workers cannot be overlooked. Therefore, this study aims to investigate the impact of informal employment on individuals’ psychological well-being. Drawing on data from the 2020 China Family Panel Studies (CFPS) survey, this work employs ordinary least squares (OLS) models and instrumental variable analysis to empirically examine the impact of informal employment on the psychological well-being. Furthermore, different tests were utilised to analyse the mediating pathway through which informal employment affects the psychological well-being. Informal employment exhibits a significant negative impact on the psychological well-being, particularly among samples characterised by low educational levels, limited financial resources, and non-agricultural household registration. The exploration of the underlying mechanisms indicates that informal employment negatively affects the psychological well-being of workers through pathways that include reduced access to health entitlements, increased working hours, and decreased job satisfaction, particularly with the work environment. A recommendation is proposed; namely, to further establish a social security system that caters to the needs of the informal employment population and supports and regulates the development of flexible employment forms, with the aim of protecting and enhancing the psychological well-being of the informal employment population.