Working Paper: CEPR ID: DP1093
Authors: Liliana Winkelmann; Rainer Winkelmann
Abstract: We investigate how individual well-being is affected by unemployment. Analysing panel data on life satisfaction, we find that unemployment has a large and negative effect. The lack of evidence for a similar effect of non-participation casts doubt on the natural rate view of unemployment. Further, we decompose the total well-being costs of unemployment and find that between 85% and 93% are non-pecuniary, and that only 7-15% are pecuniary. The main implication is that the benefits of employment generating policies exceed the benefits of policies that are designed to mitigate the effects of unemployment through income transfers.
Keywords: satisfaction; panel data; costs of unemployment
JEL Codes: D6; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment (J64) | Life Satisfaction (I31) |
| Chronic Illness (I12) | Life Satisfaction (I31) |
| Non-participation (J22) | Life Satisfaction (I31) |
| Unemployment (J64) | Total Wellbeing Costs (I31) |
| Employment Generation Policies (J68) | Cost-Benefit Analysis (H43) |
| Unemployment (J64) | Externalities (D62) |