Mental Health Disability and Labor Market Participation
A Comparative Analysis of Reservation Wage Estimation Methods

DOI:  https://doi.org/10.12804/revistas.urosario.edu.co/economia/a.15852

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Published: Sep 3, 2026
Issue: Vol. 29 No. 01 (2026)
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Keywords: reservation wage mental health disability labor market participation stochastic frontier bivariate probit

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Authors

  Clifton M. Chow
Harvard University
  Jose Ordaz

Abstract

This paper presents the first application of stochastic frontier regression and bivariate probit selection methods to estimate reservation wages for individuals with psychiatric disabilities. Using Employment Intervention Demonstration Program data (n = 1.648), we compare these methods among Supported Employment participants. The stochastic frontier approach yields an average reservation wage of $5.25 per hour, while bivariate probit produces $4.50 per hour. Reliability tests indicate that bivariate probit shows greater consistency with labor search theory predictions. Because the sample consists of Supported Employment participants, the findings should not be generalized to all people with psychiatric disabilities. Our findings suggest that disability benefits may facilitate rather than hinder labor market participation until wealth reaches higher levels, with important implications for employment policy.

Author Biographies

Clifton M. Chow, Harvard University image/svg+xml

He holds a Ph.D. in Health Policy and Management from Brandeis University, an M.S. in Applied Economics from Johns Hopkins University, an Ed.M. from Harvard University with a focus on Higher Education Administration. Dr. Chow also holds a faculty appointment at Harvard Medical School Dept of Psychiatry. 

Jose Ordaz

He holds an M.S. in Financial Analytics from Bentley University. Independent researcher specializing in econometric modeling and labor market analysis

How to Cite
Chow, C. M., & Ordaz, J. (2026). Mental Health Disability and Labor Market Participation: A Comparative Analysis of Reservation Wage Estimation Methods. Revista Economía Del Rosario, 29(01), 1–34. https://doi.org/10.12804/revistas.urosario.edu.co/economia/a.15852
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