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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

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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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Paper provided by Federal Reserve Bank of Boston in its series Public Policy Discussion Paper with number 08-1.

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Date of creation: 2008
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Handle: RePEc:fip:fedbpp:08-1

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Keywords: Unemployment Job security

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  3. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  4. Falk, Armin & Zweimüller, Josef, 2005. "Unemployment and Right-Wing Extremist Crime," CEPR Discussion Papers 4997, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Raphael, Steven & Winter-Ember, Rudolf, 2001. "Identifying the Effect of Unemployment on Crime," Journal of Law & Economics, University of Chicago Press, vol. 44(1), pages 259-83, April.
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  6. Alan B. Krueger, 1988. "The Determinants of Queues for Federal Jobs," NBER Working Papers 2499, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Andrew E. Clark, 2003. "Unemployment as a Social Norm: Psychological Evidence from Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 289-322, April. [Downloadable!]
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  8. Sanz-de-Galdeano, Anna & Turunen, Jarkko, 2006. "The euro area wage curve," Economics Letters, Elsevier, vol. 92(1), pages 93-98, July. [Downloadable!] (restricted)
  9. Anna Öster & Jonas Agell, 2007. "Crime and Unemployment in Turbulent Times," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 752-775, 06. [Downloadable!] (restricted)
  10. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June. [Downloadable!] (restricted)
  11. Stewart, Mark B & Swaffield, Joanna K, 1997. "Constraints on the Desired Hours of Work of British Men," Economic Journal, Royal Economic Society, vol. 107(441), pages 520-35, March. [Downloadable!] (restricted)
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  12. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
  13. Rafael Di Tella & Robert MacCulloch, 2005. "Partisan Social Happiness," Review of Economic Studies, Blackwell Publishing, vol. 72(2), pages 367-393, 04. [Downloadable!] (restricted)
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