Mutual obligation, unemployment and wellbeing

Recent reforms to the Australian system of income support for the unemployed have been designed to encourage the welfare to work transition. Mutual obligation measures have been accompanied by an easing of the income test taper rate and by less generous indexation arrangements for unemployment benefit levels than for most other payments. These changes have made passive receipt of unemployment benefit less attractive and less feasible for those who are unemployed. At the same time, the labour market has been growing strongly and the unemployment rate has reached its lowest level for three decades, so that the prospects of finding a job if unemployed have greatly improved. This paper uses data from two comparable social surveys to examine whether the impact of unemployment on the well-being of those in the labour force changed between 1999 and 2006. The results indicate that being unemployed is associated with lower levels of well-being on all available indicators in both years, with the effects statistically stronger in the later year. However, the evidence is mixed on whether the size of the well-being penalty associated with being unemployed increased over the period. There is no clear evidence that the penalty was greater in the later year, although this may reflect changes in the composition of the unemployed and/or the role of omitted factors.