We utilise a unique dataset that combines administrative income support data with longitudinal survey responses to look at the relationship between mental health and economic inactivity for young Australians from disadvantaged, middle, and upper-middle income families.

Socio-economically disadvantaged youth are found to have worse mental health and be less economically active. While current activity tends to be persistent, at least half of those who were economically inactive at age 18 were fully engaged at 20. Similarly, we find significant persistence in mental health between 18 and 20.

Consistent with expectations, poor mental health is correlated with lower levels of economic activity, particularly employment. However, it is concerning that the persistence of inactivity, and relationship between mental health and economic outcomes, is found to be stronger among disadvantaged youth.