A considerable amount of research documents the negative effects of job loss on both physical and mental health. Yet we know comparatively little about the mechanisms through which these effects occur. Unemployment, like other events, is not the same experience for everyone exposed to it. An understanding of this variation might be facilitated by breaking down the analysis of unemployment into a consideration of the various stresses that it creates or exacerbates. This is our purpose in the present paper.
We demonstrate that, for one area of the United States, the effect of job loss on several health outcomes involves two mechanisms: (1) unemployment results in increased financial strain which, in turn, results in negative health effects, and (2) unemployment leaves the individual more vulnerable to the impact of unrelated life events. Controlling for financial strain, unemployed people in our sample who have not experienced an additional life event in the previous year are in no worse health than the stably employed. This provides useful insights into the nature of the unemployment experience in this particular setting. It also provides a basis for future detailed explorations of the various ways people cope with this event.
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