Direct and indirect effect of depression in adolescence on adult wages

It is well recognized that a depressive mental state can persist for a long time, and this can adversely impact labour market outcomes. The aim of this article is to examine the direct association between depression status in late-teenage years and adult wages, as well as the indirect association, operating through accumulated education, experience and occupation choice. Using the National Longitudinal Survey of Youth 1997 data, we find adolescent depression is associated with a wage penalty of around 10-15%, but its mechanics are very different for males and females. For males, about three quarters of the wage penalty is through the direct channel, whilst for females the indirect effect channel is dominant. The indirect channel is driven by lower accumulated education, mostly because depression discourages further study post high school. These results are important because they imply that the association between adolescent depression and wages is stronger than has been estimated in previous cross-sectional studies.