How Do Mental and Physical Health Influence Career and Family Choices?

This paper develops a discrete choice dynamic programming model of women’s career and family decisions that incorporates the joint evolution of both mental and physical health. The framework also models decisions about psychotherapy attendance and cigarette smoking, as well as Bayesian learning about marital match quality. Structural parameters are estimated by the Simulated Method of Moments with Indirect Inference, using data on prime-aged women from the British Household Panel Study. The analysis yields several novel findings: (i) wage returns to mental health exceed those to physical health; (ii) a persistent mental health deficit lowers both lifetime earnings and utility more than an equivalent physical health deficit; and (iii) mental health shocks, match quality uncertainty, and low therapy effectiveness have larger effects on lifetime utility than conventional income- and price-based policies that alter non employment support, childcare costs, or the price of therapy and smoking.