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Unemployment As A Social Norm: Psychological Evidence from Panel Data

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Andrew Clark

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Abstract

This paper uses data from the first seven waves of the British Household Panel Survey to test a key implication of a social norm of employment: that the utility of the unemployed rises with the unemployment rate of their reference group. The GHQ-12 measure of individual well-being is taken as a proxy utility measure, and the unemployment rate in the region, of the partner, and in the household are taken as measures of adherence to the employment norm. The unemployment of "relevant others" is shown often to reduce the well-being of the employed, but to be strongly positively correlated with the well-being of the unemployed. This result, far stronger for men, is robust to controls for unobserved individual heterogeneity. Last, panel data shows that those whose well-being fell the most upon entering unemployment are both somewhat more likely to search for a new job and less likely to remain unemployed. Together, these findings suggest a psychological explanation of both unemployment polarisation and labour market hysteresis, based on the utility effects of reduced adherence to the employment norm in the reference group.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2001-17.

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Date of creation: 2001
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Publication status: Published in Journal of Labor Economics, April 2003, 21, pp. 323-351.
Handle: RePEc:del:abcdef:2001-17

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  1. Neumark, David & Postlewaite, Andrew, 1998. "Relative income concerns and the rise in married women's employment," Journal of Public Economics, Elsevier, vol. 70(1), pages 157-183, October. [Downloadable!] (restricted)
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  2. Susan L. Ettner & Richard G. Frank & Ronald C. Kessler, 1997. "The Impact of Psychiatric Disorders on Labor Market Outcomes," NBER Working Papers 5989, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September. [Downloadable!] (restricted)
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  4. Christopher J. Ruhm, 2000. "Are Recessions Good For Your Health?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 617-650, May. [Downloadable!] (restricted)
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  5. Binder, M. & Pesaran, M. H., 1998. "Optimal Consumption Decisions under Social Interactions," Cambridge Working Papers in Economics 9805, Faculty of Economics, University of Cambridge.
  6. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June. [Downloadable!] (restricted)
  7. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  8. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July. [Downloadable!] (restricted)
  9. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November. [Downloadable!] (restricted)
  10. Darity, William A, Jr & Goldsmith, Arthur H, 1996. "Social Psychology, Unemployment and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 121-40, Winter. [Downloadable!] (restricted)
  11. Clark, Andrew E & Georgellis, Yannis & Sanfey, Peter, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-41, May. [Downloadable!] (restricted)
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  12. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August. [Downloadable!] (restricted)
  13. Bewley, Truman F., 1998. "Why not cut pay?," European Economic Review, Elsevier, vol. 42(3-5), pages 459-490, May. [Downloadable!] (restricted)
  14. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March. [Downloadable!] (restricted)
  15. Whelan, Christopher T. & Hannan, Damian F. & Creighton, Sean, 1991. "Unemployment, Poverty and Psychological Distress," Research Series, Economic and Social Research Institute (ESRI), number GRS150, November.
  16. Bruno S. Frey & Alois Stutzer, 1999. "Measuring Preferences by Subjective Well-Being," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 755-, December.
  17. Alois Stutzer & Rafael Lalive, 2004. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 696-719, 06. [Downloadable!] (restricted)
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  18. Assar Lindbeck & Sten Nyberg & Jšrgen W. Weibull, 1999. "Social Norms And Economic Incentives In The Welfare State," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 1-35, February. [Downloadable!] (restricted)
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  19. Susan L. Ettner & Richard G. Frank & Ronald C. Kessler, 1997. "The Impact of psychiatric disorders on labor market outcomes," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 51(1), pages 64-81, October.
  20. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, vol. 65(257), pages 1-15, February. [Downloadable!] (restricted)
  21. Clark, Andrew E., 1997. "Job satisfaction and gender: Why are women so happy at work?," Labour Economics, Elsevier, vol. 4(4), pages 341-372, December. [Downloadable!] (restricted)
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  22. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June. [Downloadable!] (restricted)
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  23. Agerbo, E. & Eriksson, T. & Mortensen, P.B. & Westergard-Nielsen, N., 1998. "Unemployment and Mental Disorder - An Empirical Analysis," Papers 98-02, Centre for Labour Market and Social Research, Danmark-.
  24. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
  25. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January. [Downloadable!] (restricted)
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