Estimating the Mental Health Effects of Social Isolation

It is frequently hypothesized that feelings of social isolation are detrimental for an individual's mental health, however standard statistical models cannot estimate this effect due to reverse causality between the independent and dependent variables. In this paper we present endogeneity-corrected estimates of the mental health consequences of isolation (based on self-assessed loneliness scores) using Australian panel data. The central identification strategy comes from a natural source of variation where some people within our sample are required by work or study commitments to move home. This relocation may break individuals' social ties, resulting in significantly higher reported feelings of loneliness and consequently may lower mental health scores. The method gives results that are significant, robust and pass a battery of diagnostic tests. Estimates indicate that feelings of isolation have large negative consequences for psychological well-being, and that the effects are larger for women and older people. The results suggest that at current levels, a 10% reduction applied to all individuals would reduce annual expenditure on mental illness in Australia by approximately $3B AUD, or around $150 AUD per person.