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Well-being Consequences of Unemployment in Europe

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  • Namkee Ahn
  • Juan Ramón García
  • Juan F. Jimeno

Abstract

Among the working age population, one of the most damaging individual experience is found to be unemployment. Many previous studies have confirmed devastating effects of unemployment on individual well-being, both pecuniary and non-pecuniary. Using the data from the European Community Household Panel survey we examine the factors which affect unemployed workers’ well- being (satisfaction) with respect to their situations in activity, income, housing, leisure time and health in Europe. Unemployment incidence reduces substantially the satisfaction levels with main activity and finance, while it increases substantially the satisfaction level with leisure time. With respect to health, it has a small negative effect. Unemployment duration, on the other hand, shows a small negative effect on individual well-being, suggesting that unemployment has lasting and aggravating effect over the spells, contradicting the theory of adaptation. Three other results are worth mentioning. First, there are large cross-country differences in the well-being consequences of unemployment. Much smaller effects of unemployment are observed in Denmark and the Netherlands than in other countries. A part of this difference seems to be due to the differences in functioning and regulations in the labor market. In Denmark and the Netherlands, unemployment rate is lower, whose spells are shorter, and unemployment protection (unemployment benefits and active labor market policies) is greater. Second, with respect to methodology, there are small differences between cross-section and panel estimates, suggesting small bias due to unobserved fixed effects in cross-section estimation. Finally, among the unemployed, non-pecuniary factors, such as job prospect, health, and social relation, show significant effects on individual well-being, along with household income.

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Paper provided by FEDEA in its series Working Papers with number 2004-11.

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Handle: RePEc:fda:fdaddt:2004-11

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  1. Stewart, Jennifer M., 2001. "The impact of health status on the duration of unemployment spells and the implications for studies of the impact of unemployment on health status," Journal of Health Economics, Elsevier, vol. 20(5), pages 781-796, September.
  2. Ruhm, Christopher J., 2003. "Healthy Living in Hard Times," IZA Discussion Papers 711, Institute for the Study of Labor (IZA).
  3. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  4. Browning, M. & Crossley, T., 1999. "Shocks, Stocks and Socks: Consumption Smoothing and the Replacement of Durables During an Unemployment Spell," ANU Working Papers in Economics and Econometrics 1999-376, Australian National University, College of Business and Economics, School of Economics.
  5. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  6. Clark, Andrew E. & Diener, Ed & Georgellis, Yannis & Lucas, Richard E., 2006. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," IZA Discussion Papers 2526, Institute for the Study of Labor (IZA).
  7. William A. Darity & Arthur H. Goldsmith, 1996. "Social Psychology, Unemployment and Macroeconomics," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 121-140, Winter.
  8. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
  9. Christopher J. Ruhm & William E. Black, 2001. "Does Drinking Really Decrease in Bad Times?," NBER Working Papers 8511, National Bureau of Economic Research, Inc.
  10. Bentolila, Samuel & Ichino, Andrea, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CEPR Discussion Papers 2539, C.E.P.R. Discussion Papers.
  11. Martin Browning & Anne Møller Danø & Eskil Heinesen, 2003. "Job Displacement and Health Outcomes: A Representative Panel Study," CAM Working Papers 2003-14, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  12. 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.
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Cited by:
  1. Simon Sosvilla-Rivero & Pedro N. Rodríguez, . "Linkages in international stock markets: Evidence from a classification procedure," Working Papers 2004-23, FEDEA.
  2. Labeaga, José M. & Molina, José Alberto & Navarro Paniagua, Maria, 2007. "Income Satisfaction and Deprivation in Spain," IZA Discussion Papers 2702, Institute for the Study of Labor (IZA).
  3. Pedersen, Peder J. & Schmidt, Torben Dall, 2011. "Happiness in Europe," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 480-489.
  4. Verheul, Ingrid & Van Stel, André & Thurik , Roy & Urbano, David, 2006. "The Relationship between Business Ownership and Unemployment in Spain: A Matter of Quantity or Quality?/La relación entre el autoempleo y el desempleo en España: Una cuestión de cantidad o de calid," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 24, pages 435-457, Agosto.
  5. Antonio Golpe & Andre van Stel, 2007. "Self-Employment and Unemployment in Spanish Regions in the Period 1979-2001," Jena Economic Research Papers 2007-021, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.

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