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Why Does Unemployment Hurt the Employed?: Evidence from the Life Satisfaction Gap between the Public and Private Sectors

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Author Info

  • Simon Luechinger
  • Stephan Meier
  • Alois Stutzer

Abstract

High rates of unemployment entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular, job security, in workers' well-being by exploiting sector-specific institutional differences in the exposure to economic shocks. Public servants have stricter dismissal protection and face a lower risk of their organization's bankruptcy than do private sector employees. The empirical results for individual panel data for Germany and repeated cross-sectional data for the United States and the European Union show that the sensitivity of subjective well-being to fluctuations in unemployment rates is much lower in the public sector than in the private. This suggests that increased economic insecurity constitutes an important welfare loss associated with high general unemployment.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.85420.de/diw_sp0106.pdf
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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 106.

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Length: 37 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp106

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Keywords: Unemployment; life satisfaction; job security; public sector;

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References

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  1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Discussion Papers of DIW Berlin 511, DIW Berlin, German Institute for Economic Research.
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  3. Nicola Fuchs-Schundeln & Matthias Schundeln, 2005. "Precautionary Savings and Self-Selection - Evidence from the German Reunification "Experiment"," Harvard Institute of Economic Research Working Papers 2069, Harvard - Institute of Economic Research.
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  16. Alois Stutzer, 2008. "Bureaucratic Rents and Life Satisfaction," Journal of Law, Economics and Organization, Oxford University Press, vol. 24(2), pages 476-488, October.
  17. Stutzer, Alois & Lalive, Rafael, 2001. "The Role of Social Work Norms in Job Searching and Subjective Well-Being," IZA Discussion Papers 300, Institute for the Study of Labor (IZA).
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  23. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Investigating the Patterns and Determinants of Life Satisfaction in Germany Following Reunification," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  24. Becchetti, Leonardo & Castriota, Stefano & Giuntella, Giovanni Osea, 2010. "The effects of age and job protection on the welfare costs of inflation and unemployment," European Journal of Political Economy, Elsevier, vol. 26(1), pages 137-146, March.
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Cited by:
  1. Thomas Braendle & Alois Stutzer, 2008. "Bureaucrats in Parliament: Theory and Evidence on its Determinants in Germany," Working papers 2008/06, Faculty of Business and Economics - University of Basel.
  2. Nicole Uhde, 2010. "Soziale Sicherheit und Lebenszufriedenheit: Empirische Ergebnisse," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(4), pages 407-439, November.

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