An Economic Perspective on Workplace Depression: Reevaluating the Job‐Demands‐Control Framework*

Depression is the third leading cause of disability. The influential job‐demands‐control literature finds a strong relationship between an employee's control over their work (autonomy), the demands of the job and negative health outcomes such as depression. Previous studies, however, have neglected to consider how workplace factors, such as management quality, practices and culture, could also affect worker depression. We use establishment‐level fixed effects to examine whether the core job‐demands‐control relationships persist after accounting for shared workplace‐level heterogeneity. We also control for several important individual employee characteristics, such as the security of an employee's job, manager support and remuneration. We show that equilibrium correlations between pay and work‐related depression are more consistent with the economics of compensating differentials than with the psychological theory of effort‐rewards imbalance. Our within‐establishment results suggest that, while the establishment‐level fixed effects are large, the key predictions of the job‐demands‐control framework are robust; work‐related depression is increasing with job demands but decreasing in employee autonomy.