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Does Mental Health Matter for Firm Performance? Evidence from longitudinal Japanese firm data

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  • KURODA Sachiko
  • YAMAMOTO Isamu

Abstract

This study focuses on firms' profit rate, instead of This study focuses on firms' profit rate, instead of conventional self-reported subjective indices, to objectively assess the total impact of employees' mental illness on firm performance. We found the following results from a unique data set obtained by linking Japanese firms' 2004-2014 financial data to longitudinal information on their workers' mental health. First, long work hours have a small but significant effect on employee' mental health. Second, firms with higher sick leave or turnover rate of employees with mental disorders tend to have lower annual profit rates even after controlling for unobservable firm heterogeneity. These findings imply that the percentage of employees who take sick leave or leave firms due to bad mental health is the tip of the iceberg and should be considered as a proxy variable for the mental health of a firm's employees. Third, the negative effect of workers' bad mental health on firm performance is greater for firms with high fixed employment costs. These facts indicate that keeping employees' mental health in good condition is beneficial not only for employee welfare but also from a business perspective.

Suggested Citation

  • KURODA Sachiko & YAMAMOTO Isamu, 2016. "Does Mental Health Matter for Firm Performance? Evidence from longitudinal Japanese firm data," Discussion papers 16016, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:16016
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    1. Wilmar Schaufeli & Marisa Salanova & Vicente González-romá & Arnold Bakker, 2002. "The Measurement of Engagement and Burnout: A Two Sample Confirmatory Factor Analytic Approach," Journal of Happiness Studies, Springer, vol. 3(1), pages 71-92, March.
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    1. KURODA Sachiko & YAMAMOTO Isamu, 2016. "Workers' Mental Health, Long Work Hours, and Workplace Management: Evidence from workers' longitudinal data in Japan," Discussion papers 16017, Research Institute of Economy, Trade and Industry (RIETI).

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