PERSONS WITH MENTAL DISORDERS

IN THE COMPETITIVE LABOR

MARKET: FOUNDATIONS FOR A
RESEARCH AGENDA

Marjorie L. Baldwin

INTRODUCTION
Mental disorders are common and associated with substantial levels of work
disability. Relative to persons with most types of physical impairments, persons
with mental disorders have lower employment rates and lower mean wages,
and experience greater discrimination in the workplace (Baldwin, 1999, 2000;
Baldwin & Johnson, 1995, 2000). Persons with mental disorders have lower
socioeconomic status, on average, and greater risk of living in poverty, than
persons with physical disorders (Dohrenwend et al., 1992). By 1999, mental
disorders had supplanted back cases as the health condition most frequently cited
in employment discrimination charges filed under the Americans with Disabilities
Act of 1990 (Moss et al., 1999).
It is not surprising, therefore, that persons with mental disorders represent an
increasing share of the burden placed on disability support systems. Between 1989
and 1999, the numbers of working-age adults receiving SSDI or SSI support for
mental illness doubled. Over this period, the proportion of SSDI recipients disabled
by mental illness increased from 23 to 27%, while the proportion of SSI recipients
with mental illness increased from 26 to 34% (McAlpine & Warner, 2002). Persons

Research on Employment for Persons with Severe Mental Illness

Research in Community and Mental Health, Volume 13, 107–131
Copyright © 2004 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 0192-0812/doi:10.1016/S0192-0812(04)13005-5
107
108 MARJORIE L. BALDWIN

with mental disorders are also more costly over time because they tend to be
younger and to stay on disability rolls longer, than persons who receive support
for physical illness (McAlpine & Warner, 2002).
Despite the large disease burden imposed by mental illness, and the recognition
that disadvantages in the labor market limit the potential for persons with mental
illness to support themselves, there has been virtually no research on the process
whereby persons with mental disorders succeed or fail in competitive employment
settings. There are a number of studies of persons with mental disorders in
transitional or supported employment, but no studies that provide an in-depth
understanding of the experience of persons with mental disorders in competitive
jobs. One suspects this is because of the common misperception that persons with
serious mental disorders are incapable of competitive employment.
The public misperception that persons with mental disorders cannot succeed
in the workplace places persons with mental illness at a disadvantage, despite
improvements in the treatment and prognosis of mental illness over the last two
decades. The disadvantage cuts across multiple sectors of the workforce (e.g.
educated and less educated, experienced and less experienced, rich and poor) and
has a direct impact on both entry into the competitive marketplace and success
in the marketplace once a person with mental illness is hired. The problem
is paradoxical because new medications, entering the pharmaceuticals market
within the last 20 years, make it possible for increasing proportions of persons
with serious mental illness to succeed in competitive jobs. A new generation
of atypical anti-psychotic drugs, for example, has dramatically changed the
prognosis for schizophrenia. The new drugs are at least as effective as first
generation anti-psychotics in controlling the positive symptoms of the disease
(e.g. delusions, hallucinations), and often more effective in controlling negative
symptoms (e.g. ambivalence, lack of emotional affect). Equally as important, the
new drugs have less serious side effect profiles than first-generation drugs. Patients
whose symptoms are controlled by the newer drugs are less likely to experience
relapse than patients on first-generation drugs, possibly because patients taking
the newer drugs are more likely to adhere to medication regimens (Leucht
et al., 2003). The success of the new anti-psychotics, and new medications for
major depression, bipolar disorder, and other serious mental illness, has made
competitive employment a realistic possibility for many persons with mental
disorders. Given our ability effectively to treat patients with mental disorders, it
is disturbing that the misperception of their inability to work is so persistent.
This chapter outlines the foundations for a research agenda on the experiences
of persons with mental disorders in competitive labor markets. The overall
aim of the research is to develop and assess a model of mental illness and
employment, with the primary objective to identify how mental disorders translate
Persons with Mental Disorders in the Competitive Labor Market 109

into work disability. Specifically, why are some persons with serious mental
disorders able to enter the workplace and function effectively, while others with
similar diagnoses and capabilities rely on government or family support after
their attempts at employment fail? The proposed research is particularly timely
because, in addition to pharmaceutical advances, the employment mandates of the
Americans with Disabilities Act of 1990 (ADA) explicitly prohibit discrimination
against persons with mental disorders in the labor market.
The chapter is organized as follows: The next section develops a model of
mental illness and work in which the effects of individual, family, human capital,
and work-related characteristics on employment outcomes are modified by a
person’s mental illness. The third section outlines a research agenda for testing
the model using nationally representative public use survey data, with particular
focus on the influence of discrimination on employment outcomes. The fourth
section proposes a continuing research agenda based on primary data collection
using qualitative research methods. The final section presents some concluding
comments on future data collection efforts.

MODEL OF MENTAL
ILLNESS AND WORK DISABILITY
One can view the employment possibilities for persons with mental disorders as a
continuous spectrum extending from competitive jobs in the primary labor market
to jobs in sheltered employment settings. Some persons with mental disorders as
serious as schizophrenia or bipolar disorder are capable of holding high-paying
jobs with professional career tracks, if their symptoms are controlled by medica-
tions. Others, whose symptoms are less well controlled, may still be capable of
part-time minimum wage jobs in the competitive labor market. Some, whose acute
symptoms are seriously disabling, may only be capable of working in supported
employment settings. While there is an extensive literature analyzing employment
outcomes for persons with mental disorders in assisted or supported employment
(e.g. Chandler et al., 1997; Cunningham et al., 2000; Lehman et al., 2002), and
a smaller literature analyzing the impact of mental illness once employed (e.g.
Druss et al., 2000; Stewart et al., 2003), there are virtually no empirical studies on
the barriers a mental illness imposes to entry and success in the competitive labor
market. There has been no attempt to develop and test a comprehensive conceptual
model to explain the full spectrum of competitive employment outcomes for
persons with mental disorders. This section reviews the existing literature on
employment outcomes and proposes a comprehensive model of mental illness
and work disability applicable to a wide variety of employment settings.
110 MARJORIE L. BALDWIN

Previous Studies

Outcomes of assisted employment services. A number of studies have examined

employment outcomes among persons with mental disorders who participate
in supported employment or vocational rehabilitation programs. Even the most
innovative programs have limited success in placing consumers in jobs that
provide adequate and secure sources of income. Chandler et al. (1997), for
example, report the results of a randomized controlled trial of an Integrated
Service Model in California, designed to improve employment outcomes for
persons with serious mental illness. Less than four percent of jobs initiated in the
three-year study period were full-time positions, and those who worked earned a
mean annual income less than $1000. Lehman et al. (2002) evaluate outcomes of
a supported employment model that emphasizes placement in competitive jobs in
integrated work settings. The types of jobs obtained by consumers were typically
entry-level, short-term, part-time positions, so it is comes as no surprise that job
retention is identified as a significant problem.
Problems with job retention stem not only from the types of jobs consumers are
able to obtain, but also from the attitudes of consumers themselves. Cunningham
et al. (2000) study employment outcomes for consumers in an Assertive Com-
munity Treatment program. The authors use in-depth semi-structured interviews
to identify attitudes that distinguish persons with mental disorders who have
been successful in obtaining and maintaining employment from those who have
not. Those who have been unsuccessful are more likely to deny their illness
or be consumed by it, to emphasize the barriers to working rather than the
benefits, and to cover up acute symptoms with substance abuse. In a study of
consumers served by a vocational rehabilitation program, Rutman (1994) also
reports that negative consumer attitudes impose substantial barriers to successful
employment.
Other barriers to the success of supported employment programs include
attitudes of the general public toward persons with mental illness, characteristics
of the mental illness itself, and institutional characteristics of the mental health
services system. In a focus group study of patients with schizophrenia, for
example, Schulze and Angermeyer (2003) explore the role of stigma in limiting
opportunities for persons with serious mental illness. Respondents indicate that
stigma presents a major obstacle in gaining access to important social roles,
including employment. In his study of consumers in a vocational rehabilitation
program, Rutman (1994) reports that the cognitive and social deficits associated
with mental illness, the chronic and sporadic nature of mental illness, and the side
effects of treatments impose barriers to successful employment outcomes. Other
important barriers include: economic factors (e.g. work disincentives of disability
Persons with Mental Disorders in the Competitive Labor Market 111

benefits) and institutional characteristics of the mental health services system

(e.g. tensions between agencies serving the mentally ill population, difficulties in
evaluating work potential and defining mental illnesses).
Many persons with mental disorders want to work, but are discouraged by the
demeaning tasks and low pay available in supported employment settings. Perhaps
this explains the failure of supported employment services to generate secure
jobs, and offers hope of improving employment outcomes in more rewarding
employment settings in the competitive labor market. Yet persons with mental
disorders who enter competitive labor markets face many of the same barriers as
those who receive assisted employment services, without the institutional support
systems to assist with job placement and counseling. It is no surprise, therefore,
that employment outcomes are bleak. Much of what is currently known about
persons with mental disorders employed in competitive jobs comes from studies
of disability-related discrimination, summarized in the following section.
Discrimination in competitive jobs. Research consistently shows that workers
with mental disorders experience poorer outcomes in the competitive labor market
than do non-disabled workers or workers with physical disorders. Relative to
persons with most types of physical impairments (cardiovascular, musculoskele-
tal, respiratory, sensory), persons with mental disorders have lower employment
rates and lower mean wages (Baldwin, 1999, 2000). Wage differentials between
disabled and non-disabled workers vary by impairment and gender, but mental
illness, emotional problems, and substance use problems generate the largest
wage differentials for both men and women (Baldwin et al., 1994).
The existence of a large wage differential between two groups of workers does
not necessarily imply that one group is subject to discrimination, because the
differential may be explained by differences in the average productivity of the two
groups. According to an economist’s definition, labor market discrimination occurs
when two groups of workers with equal average productivity receive different
average wages or face different opportunities for employment. Differences between
the productivity-related characteristics of two groups of workers must be accounted
for before concluding that one group is subject to discrimination.
Empirical studies of wage discrimination use multivariate regression models to
control for differences in productivity-related characteristics so the discriminatory
part of the wage differential can be isolated. Baldwin (1999), for example,
estimates total earnings losses attributed to disability-related discrimination
in 1990. Workers with mental disorders are one of five impairment groups
considered (others are cardiovascular, musculoskeletal, respiratory, and sensory
impairments). As shown in Table 1, workers with mental disorders incur some of
the largest discriminatory losses, given their population size. The author estimates
that over 200,000 men and women with mental impairments, who were able to
112 MARJORIE L. BALDWIN

Table 1. Earnings Losses Attributed to Disability-Related Discrimination.

Impairment Category
Mental Sensory Musculoskeletal Cardiovascular Respiratory

Males
Earnings loss- $1.8 $1.2 $7.4 $2.1 –
employment
Earnings loss – – – $3.7 $1.7 –
wages
Females
Earnings loss- $1.6 – $2.7 $2.7 –
employment
Earnings loss – $0.5 – – – –
wages
Total loss $3.9 $1.2 $13.8 $6.5 –
Population 889,127 442,071 5,462,053 1,291,513 975,055
Per capita loss $4,386 $2,714 $253 $5,033 $0

Note: Total losses in $billions. Blank cells indicate no significant losses after controlling for produc-
tivity differences.
Source: Baldwin (1999).

work, were not employed in 1990 because of disability-related discrimination,

translating to earnings losses of approximately $3.5 billion. After controlling for
differences in productivity-related characteristics, employed women with mental
disorders lost an additional $0.5 billion, relative to non-disabled women, because
of low discriminatory wages. Overall, per capita losses for persons with mental
disorders exceed $4000, greater than the per capita losses of any other impairment
group except cardiovascular disorders.
Several studies of disability-related discrimination explicitly test the relation-
ship between discriminatory wage differentials and rankings of stigma against
different health conditions. Baldwin and Johnson (2000) separate their sample
of men with disabilities into two groups: those with conditions subject to more
stigma (including mental disorders and physical conditions such as blindness or
paraplegia) and those with conditions subject to less (such as, arthritis, diabetes,
stomach disorders). The authors use a decomposition technique, introduced to
the economics literature by Oaxaca (1973), to estimate discriminatory wage
differentials for each group of men with disabilities compared to non-disabled
men. The results, shown in Table 2, indicate a larger wage differential for the group
with impairments subject to greater stigma ($2.45 vs. $2.22). The discriminatory
component of the wage differential is also greater for this group, consistent
with the hypothesis that discrimination is correlated with rankings of stigma.
Persons with Mental Disorders in the Competitive Labor Market 113

Table 2. Estimates of Disability-Related Wage Discrimination.

Disabled – Less Stigma Disabled – More Stigma

Difference in mean wages $2.22 $2.45

(relative to non-disabled men)
Difference in mean offer wages 0.190 0.280
Decomposition of offer wage 0.033 0.116
differential
Explained component 0.157 0.164
Un-explained component

Note: The difference in mean offer wages is estimated from observed wages by converting to logarithms
and correcting for sample selection bias. The group subject to more stigma includes men with
mental disorders. Source: Baldwin and Johnson (2000).

Unfortunately, the results provide only limited information on the role of stigma
and discrimination in determining wage rates for persons with mental disorders,
because mental disorders are grouped with physical conditions also ranked high on
the stigma scales.
In an earlier study, Baldwin and Johnson (1994b) explore the relationship
between discrimination and stigma by including binary variables for different
categories of health conditions in a multivariate regression model with wages as
the dependent variable. In this study, mental disorders are treated as a distinct
group. Estimates of discriminatory wage differentials are ranked across health
conditions and compared to stigma rankings (from general population samples),
and employability rankings (from samples of employers). The correlation of
discriminatory wage differentials with employability rankings is statistically
significant, but the correlation with stigma rankings is not. Persons with mental
disorders, however, have the strongest stigma rankings, lowest employability
rankings, and largest unexplained wage differentials.
Research consistently shows that low employment rates are an even more serious
problem than low wages for workers with disabilities. In fact, the two problems are
reinforcing. This is because labor supply curves slope upward (that is, high wages
attract workers to the labor force), so that some workers who would be willing to
work at a higher (nondiscriminatory) wage rate are unable or unwilling to work
for a lower (discriminatory) wage. Baldwin and Johnson (1992) call these the
“employment effects of wage discrimination” and develop methods for estimating
the employment effects that have subsequently been applied to studies of wage
discrimination against workers with disabilities (Baldwin & Johnson, 1994a, 1995,
2000; Kidd, 2000). To date, there are no separate estimates of the employment
effects of wage discrimination for persons with mental disorders.
114 MARJORIE L. BALDWIN

The evidence cited above suggests that persons with disabilities, in general,
and persons with mental disorders, in particular, face lower wages in competitive
labor markets because of the stigma attached to their health conditions. Like the
studies of supported employment programs, however, research on persons with
mental disorders in competitive labor markets too often takes a narrow view of
the problem. The discrimination studies, for example, are limited by the scope
of variables available on previously collected national survey data. The studies
typically focus on stigma and human capital endowments, omitting from the
models nature of illness, job accommodations, and other characteristics especially
important for persons with mental illness. The few qualitative studies of persons
with mental disorders in competitive labor markets also typically have a narrow
focus. Scheid (2000), for example, provides important insights on employer
attitudes toward hiring persons with mental illness, particularly with respect to the
mandates of the ADA, but does not address characteristics of the job, co-workers,
or work environment that can make the workplace more or less supportive for
persons with mental disorders. Nor does she interview consumers.
In the following section I attempt to address these gaps in the literature by
developing a comprehensive model of mental illness and employment that can
provide the foundation for a research agenda in this under-studied area, using both
qualitative and quantitative methods. The model can be applied across a broad
spectrum of competitive employment settings, the area most neglected in previous
research.

A Model of Employment Outcomes

This section develops a model of mental illness and work disability that applies
to the entire spectrum of the competitive labor market, from entry-level workers
to career-track professionals. The model identifies five domains of characteristics
that have important influences on employment outcomes for workers with mental
disorders, namely, individual characteristics of the worker, characteristics of
his family and community support networks, human capital characteristics that
determine worker productivity, characteristics of the work environment, and
characteristics of the mental illness and its treatment. McAlpine and Warner
(2002) previously identified four domains of characteristics that act as barriers
to employment among individuals with mental illness, namely: illness character-
istics, consumer characteristics, access to services and appropriate mental health
treatment, and characteristics of the workplace and labor market. The model
developed here differs in that it is grounded in theories of labor economics equally
applicable to disabled and non-disabled workers; it overlays mental illness, the
Persons with Mental Disorders in the Competitive Labor Market 115

key domain of interest, as a modifying influence on all other domains; and it

seeks to identify both factors that facilitate and factors that impede successful
employment outcomes for workers with mental disorders.
In what follows, I briefly summarize the human capital model of wages and
employment widely utilized by labor economists, and show how it generates the
first four domains of the model of mental illness and work disability. Then, I
overlay mental illness as the fifth and final domain of the model, and describe
both its direct effect on employment outcomes and its modifying effect on the
influence of other domains.
The Human Capital Model. Labor economists are interested in quantifying dif-
ferences in employment outcomes across different types of workers and different
types of jobs, and in analyzing the sources of those differences. The outcomes
of interest, employment and wage rates, are determined by characteristics that
influence employment agreements between workers and employers. According to
economic theory, an agreement is accepted when the employer’s “wage offer” is
at least equal to the worker’s “reservation wage” (the minimum wage necessary to
induce a worker to forego an hour of leisure for paid employment). Employment
rates reflect the probability of workers receiving wage offers that match or exceed
their reservation wage, so any characteristics that directly affect offer wages or
reservation wages have direct effects on employment outcomes.
The reservation wage varies with individual preferences for leisure time vs.
work time, where leisure time refers to any activities other than work for pay,
including sleeping, taking care of housework, and caring for young children.
Workers’ preferences for leisure time are expected to vary systematically with
individual characteristics (e.g. age and gender), family structure (e.g., unmarried
women typically have stronger attachments to the workforce than married women
with young children) and with non-wage incomes. The latter is particularly
important for persons with serious mental disorders, who may qualify for income
assistance from SSDI or SSI without working. If so, the reservation wage will
at least equal the amount available from the government subsidy, unless the
individual has very strong preferences for work.
Employers’ wage offers reflect the productivity of different types of workers,
where more productive workers command higher offers because their output pro-
duces greater value for employers. Labor economists often refer to the productive
capacity of workers as “human capital,” meaning the stock of productive skills
and knowledge a worker brings to the labor market. Workers have incentive to
invest in human capital, through activities such as education, job training, and
health care, to increase the probability of receiving higher wage offers.
In constructing empirical models of employment outcomes, economists include
a fairly standard set of variables reflecting factors that influence offer wages and
116 MARJORIE L. BALDWIN

reservation wages. Typically, the variables included in these “human capital”

models of wages are: worker characteristics such as age, gender, and race; char-
acteristics of the family, such as marital status, and number and ages of children;
human capital characteristics, such as education, work experience, and health
status; and work-related characteristics, such as hours worked, occupation, and
union membership. Labor economists have devoted entire careers to estimating
variations of these wage and employment models, and there are literally thousands
of publications in leading economics journals using the human capital model as
a theoretical foundation. This has been the main approach used to calculate the
indirect costs of mental disorders in previous work (e.g. Greenberg et al., 1993;
Greenberg et al., 1999; Rice et al., 1992; Rice & Miller, 1996). Because this work
has sought to provide global estimates of costs, there has been relatively little need
for detailed exploration of the specific pathways whereby mental illness leads to
work disability. For instance, none of these studies has sought to disentangle the
contributing roles of stigma and discrimination in labor market outcomes.
Incorporating Mental Illness in the Model. Figure 1 depicts a model of the
impact of mental illness on employment outcomes, based on the human capital
framework. Each of the four clusters of characteristics that determine workers’
reservation wages and employers’ offer wages represents one domain in the
model, namely: individual characteristics, family and community characteristics,
human capital characteristics, and work-related characteristics. Some domains
include additional variables, not typically included in economists’ models, that
may be important determinants of outcomes for persons with mental illness.
For example, attitudes of supervisors and co-workers and availability of job
accommodations are included with work-related characteristics, and a support
network of friends is included with family and community characteristics.
Mental illness is shown as an additional domain in the model with the effects
of all other domains modified by the illness. Thus, mental illness has both direct
effects on employment outcomes and modifying effects on the influence of other
domains. The direct effects reflect how the functional limitations associated with a
mental illness and its treatment affect employment outcomes through their impact
on offer wages and reservation wages. The interactions between mental illness
and other domains modify the influence of individual and family characteristics,
human capital, and workplace characteristics on employment outcomes. Of
course, there are numerous interactions across other domains of the model that
can be analyzed empirically. Here, the main points of interest are the direct and
indirect chains of causality between mental illness and work disability.
Direct effects. Mental illness has direct effects on employment outcomes
because it is so often associated with functional limitations that affect worker pro-
ductivity and, therefore, employers’ offer wages. Using data from the 1994–1995
Persons with Mental Disorders in the Competitive Labor Market 117

Fig. 1. Model of Mental Illness and Work Disability. Note: Arrows in the diagram represent
the modifying influence of mental illness on each domain and its effect on employment
outcomes. The arrows do not represent chains of causality.

National Health Interview Disability Survey, Druss et al. (2000) examine the
association between functional disability and the presence of a mental condition,
a general medical condition, or combined mental/medical conditions. Three areas
of functional limitations are examined, namely social, cognitive, and physical
limitations. Respondents with mental conditions are more likely than those with
medical conditions to report difficulties in social and cognitive functioning,
and to report difficulties across multiple functions. The authors conclude that
general medical conditions primarily affect physical functioning, whereas mental
118 MARJORIE L. BALDWIN

conditions lead to deficits in higher-order social and cognitive skills that may be
particularly important for success in the workplace. Ormel et al. (1994) examine
the relationship between psychiatric status and disability using data collected by
the World Health Organization Collaborative Study on Psychological Problems in
General Health Care. They find that psychiatric illness is associated with cognitive,
emotional, and motivational limitations that affect the highest-level functional
capacities of human beings, so that moderate levels of mental illness are more
disabling than moderate levels of physical illness. Rutman (1994) reports that, in
addition to the functional limitations associated with the illness itself, the medi-
cations used to treat mental illness are often associated with disabling side effects
that can affect work outcomes.
Mental illness also has direct effects on employment outcomes because mental
illness affects the optimal trade-off between labor and leisure time, that is, the
reservation wage. Oi (1991) argues “disability steals time” because persons with
disabilities need more leisure time to rest, obtain medical care, and accomplish
personal and household tasks. Whether or not the acute symptoms of mental illness
are controlled through treatment and medication, the increased susceptibility to
stress that characterizes many mental disorders is also likely to increase the value
a worker places on leisure time.
Recent studies indicate that different categories of mental illness are associated
with different time demands and different types of disability. Bassett et al. (1998)
analyze functional disability and its relationship to diagnosed mental disorders,
health care utilization, and receipt of disability benefits, using data from the
1980–1981 Eastern Baltimore Health Survey. They find that mood disorders are
associated with elevated utilization of general medical and general mental health
visits; schizophrenia, mood disorders, substance use, and anxiety disorders are
associated with significant increases in utilization of specialized mental health
visits; and schizophrenia and cognitive disorders are associated with a greater like-
lihood of receiving disability payments. Dewa and Lin (2000) report that affective
disorders have a stronger association with reduced productivity at work than do
other mental disorders. The research suggests that pathways from mental illness
to work disability vary with diagnosis, so that, ideally, the model of mental illness
and employment outcomes should be tested separately for different categories of
mental illness.
Mental illness as an effect modifier. Next, consider the indirect influence of
mental illness on employment outcomes through its modifying influence on other
domains. A few studies of workers in assisted or supported employment settings
describe interaction effects between individual characteristics, mental illness and
associated employment outcomes. Cunningham et al. (2000), for example, reports
that persons who have been successful in obtaining and maintaining employment
Persons with Mental Disorders in the Competitive Labor Market 119

tend to view mental illness as only part of their lives and work as a necessity to
improve one’s self-esteem and to have control over one’s life. In other words, this
group exhibits strong preferences for work vs. leisure time. Persons who have not
been successful in obtaining employment tend to deny their mental illness or be
consumed by it, and to emphasize the barriers a mental illness imposes on success
in the workplace.
To my knowledge there is no empirical evidence on interaction effects
between family and community characteristics, mental illness and the effect on
employment outcomes. Yet we know that relationships with family and friends
can provide strong support networks for persons entering the labor market, and
there is empirical evidence that these relationships frequently deteriorate in the
presence of a mental disorder. In a study of persons with depressive symptoms,
for example, Judd et al. (1996) report that depressed persons are significantly
more likely to report household strain, social irritability, and financial strain than
persons without depressive symptoms. It remains to be seen how the tension
in family relationships associated with a mental disorder affects employment
outcomes.
The available evidence on interactions between productivity-related character-
istics and mental illness and the effect on employment outcomes focuses almost
exclusively on health status. McAlpine and Warner (2002) report that persons
with co-morbid physical and mental disorders have lower work effort, lower
employment rates, and greater functional limitations than persons with a physical
or mental condition alone. Persons with co-morbid substance abuse problems and
mental disorders experience greater work loss, a higher likelihood of quitting or
being fired, and lower chances of obtaining employment than persons with only
one condition. There is some evidence that persons with higher education fare
better in the labor market after onset of a mental illness than persons with less
education (Yelin & Cisternas, 1997), but no one has studied adequately the ways
in which workers’ human capital investments affect employment outcomes in the
presence of a mental disorder.
Several studies describe how interaction effects between workplace character-
istics and mental illness influence employment outcomes. Gates (2000) studies a
sample of workers with diagnosed mental illness, on short-term disability leave
from competitive jobs in the public sector. He reports that the key to a successful
return to work is the attitude of the supervisor, while the most important barriers
to success are problems with communications and problem relationships between
the worker, his or her co-workers and/or supervisor. Kessler and Frank (1997)
find that work outcomes vary for persons with mental disorders in different
occupations. Using data from the U.S. National Co-morbidity study, they examine
the impact of mental disorders on work loss days and work cutback days (days
120 MARJORIE L. BALDWIN

when a worker is able to work ‘but had to cut back on what they did, or did not
get as much done as usual’). Although there are no significant differences across
occupations in the average number of work loss days associated with a mental
disorder, workers in professional occupations report significantly more work
cutback days than workers in other occupations.
One important way in which mental illness interacts with other domains of the
model, and potentially leads to work disability, is through the prejudice, or stigma,
attached to mental disorders. Studies ranking health conditions by the degree
of prejudice they elicit consistently find that mental disorders generate some of
the strongest negative attitudes, with little change over the last three decades
(Albrecht et al., 1982; Royal & Roberts, 1987; Tringo, 1970; Westbrook et al.,
1993; Yuker, 1987). Persons with mental disorders experience stigma comparable
to ex-convicts or persons with AIDS, and there is indirect evidence that stigma
translates to differential treatment in the labor market.
Consider how stigma, interacting with characteristics of the workplace, can
lead to work disability for someone with a serious mental illness, for example,
schizophrenia. Schizophrenia is an impairment characterized by abnormal brain
chemistry. It is typically associated with functional limitations such as sensitivity
to stress, limitations of cognitive functioning, and inability to distinguish reality
from delusions or hallucinations. If the symptoms of schizophrenia are not
controlled through medication, and restrict the worker’s ability to obtain a job
or perform his usual job, the impairment causes functional limitations that lead
to work disability. Even if the symptoms of schizophrenia are controlled through
medication (which is becoming more common with new atypical anti-psychotics),
the worker may still experience stigma from co-workers or supervisors that
affects his productivity on the job. In this case, it is the stigma associated with
schizophrenia, not the functional limitations, that lead to work disability.
Another important interaction between work-related characteristics and
mental illness, that can have profound effects on employment outcomes, is the
willingness of employers to provide job accommodations. Job accommodations
include any modifications to job requirements or work environments that facilitate
employment for person with disabilities, including, but not limited to, flexible
scheduling, unscheduled breaks, or light work assignments. Although the types of
job accommodations typically required for persons with mental disorders are not
particularly costly (Granger et al., 1997), they differ from the accommodations
typically provided for persons with physical disorders, and accommodating mental
disorders can be more difficult to arrange. The most common types of accom-
modations provided to workers with mental disorders are accommodations that
facilitate communications between workers and their supervisors or co-workers,
while the least common are changes to the physical workspace (Granger et al.,
Persons with Mental Disorders in the Competitive Labor Market 121

1997). Other typical accommodations for persons with mental disorders include
flexible schedules, unpaid leave days, re-delegation of work assignments, shared
work assignments, job coaches, written instructions, daily planning sessions, and
tolerance of unusual behavior (Scheid, 2000). In a study of a small sample of
workers on short-term disability leave with psychiatric diagnoses, Gates (2000)
reports that workplace relationships are the greatest barrier to return to work, but
relationship accommodations are perceived as difficult to arrange.
The empirical evidence on what leads to successful employment outcomes
for persons with mental disorders comes primarily from small-sample studies of
persons in non-competitive jobs. Most studies focus on only one aspect of the
problem, such as stigma, illness characteristics, or individual attitudes. What is
lacking is objective data on the experiences of persons with mental disorders in
competitive labor markets, based on a comprehensive model of mental illness
and employment outcomes. The advantage of working from a comprehensive
model is that it directs attention to all domains that may have important effects
on employment outcomes (e.g. family and community characteristics have been
virtually neglected in the research to date) and to interaction effects between
mental illness and other characteristics that influence outcomes.
In what follows, I present the outline of a research agenda designed to develop
and assess the model of mental illness and employment, with the primary
purpose to identify the pathways whereby mental disorders translate into work
disability. The first phase of the research emphasizes quantitative analyses
of large, nationally representative databases. The second phase is a smaller,
qualitative study designed to identify important aspects of the model not captured
on national data. Although consumers are the primary population of interest, the
qualitative study will draw on the expertise of employers, consumers, and mental
health professionals to refine and develop the model. The final phase of research,
still in the planning process, is the development, administration, and analysis of a
large, representative survey of persons with mental disorders in competitive jobs,
informed by the results of the earlier studies.

RESEARCH AGENDA: NATIONAL SURVEY DATA

Background

In a review article on research to date on mental illness and employment,

McAlpine and Warner (2002) identify the need for more empirical analyses
of the effects of mental illness on employment outcomes, and more research
using community-based samples. The projects proposed here address these gaps
122 MARJORIE L. BALDWIN

in the research by providing empirical evidence regarding the most important

determinants of labor market outcomes for persons with mental illness, from a
variety of primary and secondary data sources, and across a variety of consumer
populations.
This section describes the first phase of the research, focusing on the stigma
associated with mental illness and its effect on employment outcomes. The project
uses the Medical Expenditure Panel Survey (MEPS), a nationally representative
sample of American households, and the National Health Interview Survey – Dis-
ability Supplement (NHIS-D), to identify the types of mental disorders associated
with poor work outcomes, and to analyze the extent to which persons with mental
disorders are subject to discrimination in the labor market. Previous research
shows that discrimination contributes to the low wages and employment rates of
persons with disabilities, and that the extent of discrimination is weakly correlated
with the intensity of stigma associated with different types of impairments.
Compared to persons with most physical disorders, persons with mental disorders
are subject to more intense stigma (Royal & Roberts, 1987; Westbrook et al.,
1993), but there are no studies of labor market discrimination specifically focused
on persons with mental illness and the relationships between different diagnoses
and discrimination.
The extent of negative attitudes toward persons with mental disorders is
evidenced by the controversies surrounding coverage of mental illness in the
Americans with Disabilities Act (ADA). At the time the ADA was debated,
coverage of mental illness in general was a contentious issue (Campbell &
Kaufmann, 1997). In the final compromise, persons with mental disorders are
included as a protected class under the law, but the Act limits their protection
in important ways. Coverage of persons with ongoing substance use problems is
restricted and persons who potentially “pose a threat to the health and safety of
those not covered by the ADA” are excluded (Scheid, 2000). Clearly, the latter
provision plays upon the stereotypes of persons with severe mental illnesses,
and may provide a justification for discrimination by uninformed or prejudiced
employers.
What was missing from the debates on the ADA was objective data on
the experiences of persons with mental disorders in the labor market, and the
extent to which employer discrimination affects their wages and employment
opportunities. Still, ten years after implementation of the Act, there is a lack of
objective information on how persons with different types of mental disorders fare
in the labor market. A study of labor market discrimination against persons with
mental disabilities is particularly appropriate at this time because of the mandates
of the ADA and because of recent advances in medications for serious mental
disorders.
Persons with Mental Disorders in the Competitive Labor Market 123

Objectives

This project uses data from the 1996/1999 Medical Expenditure Panel Survey
(MEPS), and the 1994–1995 National Health Interview Survey – Disability
Supplement (NHIS-D), to analyze work disability and discrimination among
persons with mental disorders. One advantage of the data is that it provides
sufficiently large samples to obtain separate estimates for persons with different
diagnoses of mental illness, as proscribed in the model developed above. The
specific objectives of the project are:

(1) To compare the relative wages and employment rates of persons with a
variety of serious mental disorders to persons with physical impairments and
to persons without disabilities; and to estimate the extent to which the low
wages of persons with mental disorders can be attributed to labor market
discrimination.
(2) To compare the health care and work loss costs of persons with different types
of mental disorders and analyze the extent to which expectations regarding
expenditures may explain observed wage and employment differentials.
(3) To identify characteristics of the worker and workplace that enable persons
with mental disorders to participate in the labor market (e.g. occupation,
health insurance coverage, flexible schedules).
(4) To analyze the extent to which self-reports of job-related discrimination
coincide with measures of discriminatory wage and employment differentials.

Project Summary

The discrimination studies cited in an earlier section rely almost exclusively on data
from the 1984 and 1990 panels of the Survey of Income and Program Participation
(SIPP) to analyze the labor market experiences of workers with disabilities. The
SIPP is useful for studies of disability-related discrimination because it includes
measures of health conditions, functional limitations, and work disability, together
with good data on the demographic and job-related characteristics of individual
workers. Nevertheless, the SIPP has serious deficiencies for studies of persons
with mental disorders in the labor market. The survey does not identify specific
diagnostic categories of mental illness, so at best, persons with mental disorders
must be analyzed as a single group. The SIPP includes only limited information
on cognitive limitations, the productivity limitations most often associated with
mental disorders. Measures of cognitive limitations are nonexistent on the 1984
survey, and limited to two questions in 1990 (ability to handle money, ability
124 MARJORIE L. BALDWIN

to use the telephone). The omission severely limits the value of the SIPP for
discrimination studies focused on persons with mental illness. Finally, the SIPP
does not include measures of health care costs, so it is impossible to estimate the
impact of expected costs on the employment or wages of persons with mental
disorders.
The combined MEPS/NHIS-D data sets now make possible a comprehensive
study, focusing on persons with mental disorders, that addresses the concerns
raised by the earlier research. The study represents the first time that economic
models of employment, wage determination, and discrimination will be applied
to an adequate data set to study the experiences of persons with mental disorders
in the labor market. The MEPS provides information on individual characteristics
and employment, together with detailed data on health care costs and the ability
to identify persons with particular diagnoses of mental illness. The NHIS-D
provides a rich source of data on functional limitations, including cognitive
limitations, and self-reports of job discrimination. The Agency for Healthcare
Research and Quality (AHRQ), the agency that conducts the MEPS, has made
available a linkage file so that the data sets can be used together.
The combined MEPS/NHIS-D file will support a more comprehensive as-
sessment of the impact of mental disorders on individuals’ experiences in the
workplace than has been possible to date. Nevertheless, there are still a wide
variety of key variables in the model of mental illness and work disability (e.g.
family support and adherence to medications) that are not available on any
national surveys. Further, there may be important determinants of work outcomes
for persons with mental illness that have not been identified in the model. For these
reasons, a second in-depth qualitative study is planned, building on the findings of
the first study, to identify the concepts that need to be measured to support a more
comprehensive analysis of mental illness and work disability than is possible
with national survey data.

RESEARCH AGENDA:
EXPLORATORY QUALITATIVE STUDY
Background

The second phase of research is an exploratory study to assess the real-world

experiences of persons with mental disorders in the workplace, to confirm and
elaborate upon findings from the MEPS/NHIS-D data, and to identify important
determinants of outcomes that are not measured on national survey data. The real
Persons with Mental Disorders in the Competitive Labor Market 125

world of mental illness has changed dramatically over the last decade because of
the development of a new generation of medications that enable many consumers
to function at a level where they can participate in the competitive labor market.
Yet it is unclear why some consumers have been able to benefit from new
treatments and find gainful employment in the competitive labor market while
others with similar diagnoses have not. Although national surveys have examined
issues related to competitive employment, mental health issues have been given
only cursory attention, possibly because no one knows the right questions to
ask, or because it is assumed that persons with serious mental disorders are
unable to work. No one has done the detailed fieldwork to explore the circum-
stances in which persons with serious mental illness can succeed in competitive
employment.
The second project takes what is learned from the first phase of research
using national survey data and applies it to developing a more comprehensive
model of this understudied area. The first project analyzes national survey data
on consumers, while the second is a qualitative study involving all players in
the employment agreement. The project analyzes the experiences of employers,
consumers, and mental health professionals in facilitating employment in
the competitive labor market for persons with mental disorders. This section
summarizes the objectives of the project and outlines methods for collection and
analysis of the qualitative data.

Objectives

Although there are a number of qualitative studies of persons with mental disorders
in transitional or supported employment, this will be the first study to provide
an in-depth understanding of the experience of persons with mental disorders in
competitive jobs.
The specific objectives of the project are:
(1) To contribute to our understanding of the process whereby persons with mental
disorders succeed or fail in the competitive labor market.
(2) To identify important determinants of employment outcomes that are not mea-
sured, or measurable, on national survey data.
(3) To develop a specialized survey instrument for use in a future, large-scale data
collection effort. The instrument will collect the measurable data required to
analyze the relative importance of each domain (illness, individual, family and
community, human capital, and work-related characteristics) in determining
labor market outcomes for persons with mental disorders.
126 MARJORIE L. BALDWIN

Project Summary

The second project gathers information on the experiences of key stakeholders

in facilitating competitive employment for persons with mental disorders. The
project uses a series of focus groups and key informant interviews to obtain
information from consumers, employers, and mental health professionals about
characteristics that facilitate competitive employment, or act as barriers to
employment for persons with mental disorders. Responses are elicited in the
five domains of the model of mental illness and work disability, namely, illness
characteristics, individual characteristics, family and community characteristics,
human capital characteristics, and work-related characteristics.
Information from consumers and employers is obtained through open-ended,
semi-structured interviews. Consumer participants include persons diagnosed
with a serious mental disorder (schizophrenia or other psychotic disorder, mood
disorder, anxiety disorder, dissociative disorder) whose symptoms are sufficiently
controlled that competitive employment is possible. Employer participants include
human resource representatives and/or managers who have experience hiring
and/or supervising employees with mental disorders. Interviews are conducted
individually to protect respondents’ privacy, and to eliminate constraints that
might be imposed by discussing stigmatized conditions in a group setting (Coreil,
1995). The interview consists of a series of questions designed to identify
characteristics across the five domains of the model that have contributed to
successful or unsuccessful employment experiences.
Information from mental health professionals is obtained through a series
of focus group discussions with social workers and vocational rehabilitation
counselors who have experience placing consumers in competitive employment.
A scripted conversation guide is used to query all groups. Open-ended questions
focus the discussion on identifying factors that facilitate or impede employment
for persons with serious mental illness. Social workers and counselors are often
the primary providers of mental health rehabilitation and treatment services, so
the purpose of the focus groups is to give them an opportunity to talk about their
real-world experiences helping persons with mental illness secure and maintain
competitive employment.
Transcripts of the interviews and focus groups are being reviewed to develop
a preliminary list of characteristics that are mentioned as important determi-
nants of employment outcomes. The data are coded to identify places in the
transcripts where each characteristic appears. After all transcripts are coded,
frequencies of occurrence of each characteristic are calculated and used as the
basis for combining or dividing categories. The final list of key characteristics,
with frequencies of occurrence in each stakeholder group, is the basic data to
Persons with Mental Disorders in the Competitive Labor Market 127

generate the outputs of the study. The results are expected to confirm parts
of the current model, but also to correct and improve the model in possibly
radical ways.
Qualitative research methods such as those described above are ideal for an
exploratory study, but the results are not generalizeable to larger populations.
Instead, the results of the qualitative analyses will be used to develop instrumen-
tation for a larger, more representative study of persons with mental disorders in
competitive labor markets. Also, and potentially of greater importance, I will use
the opportunity provided by the individual interviews and focus groups to talk
to stakeholders about how effectively to conduct a large-scale study on such a
sensitive topic.

FUTURE DIRECTIONS

Research on mental illness and work disability to date is limited in both scope
and detail, yet it underscores the importance of analyses of work disability in the
competitive marketplace that focus specifically on persons with mental disorders.
The focus is needed because persons with mental disorders face much poorer
prospects in the labor market, both in terms of relative wages and probabilities
of employment, than do persons with physical health conditions. Persons with
mental disorders also encounter more intense stigma than do persons with
most other health conditions, comparable to the stigma associated with AIDS.
Separate analyses of mental illness and work disability are important not only
because of the poor outcomes for this group, but because mental disorders
affect worker productivity in a distinctly different manner than do physical
disorders, imposing different types of functional limitations that require different
types of job accommodations. Finally, recent advancements in medications
for mental illness enable many persons with even the most serious mental
disorders to function at a level where they are capable of competitive employ-
ment, so the study of mental illness and work disability is not only important
but timely.
Yet there is virtually no research specifically focused on the experiences of
persons with mental illness in competitive labor markets. Economists in particular
have failed to apply their models of wages, employment, and labor market
discrimination to this minority group, perhaps because the data have not been
available to support such a study, or because they believe so few persons with
mental illness are working in competitive settings. One indicator of the degree to
which the topic is understudied is the excessively positive reactions this research
agenda has received from funding agencies, editors, and consumers and their
128 MARJORIE L. BALDWIN

families and friends. Persons with serious mental illness who have struggled
silently against obstacles to employment are eager to tell their stories.
The model of mental illness and work disability, together with the first two
projects described above, provide the foundation for a research agenda in this
understudied area. The logical next step is to administer and analyze a large-scale,
representative survey of persons with mental disorders in the workplace. Using
the qualitative data gathered as part of the earlier project, a survey instrument can
be developed to collect data on all key components of the conceptual model. The
survey will be administered to a large, random sample of persons with serious
mental illness in a variety of settings, including: persons in treatment, employed
persons, persons receiving services from community mental health clinics, and
persons in prevocational or supported employment programs. The objective of
the large-scale study will be to obtain sufficient data, with adequate samples of
persons with different types of mental disorders, to support a comprehensive
analysis of the important determinants of labor market outcomes for persons with
serious mental illness. Potentially, the findings will contribute to improving em-
ployment outcomes for future generations of persons with mental illness who want
to work.

ACKNOWLEDGMENTS
The author gratefully acknowledges the contributions of Steven C. Marcus,
Research Associate Professor, University of Pennsylvania School of Social
Work, and Benjamin G. Druss, Rosalynn Carter Chair of Mental Health, Emory
University Rollins School of Public Health, to the development of the research
agenda outlined in this chapter. Thanks also to Rebecca M. B. White for helpful
comments and research assistance.

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