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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. Alois Stutzer & Bruno S. Frey, 2004. "Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 124(2), pages 191-231.
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  9. 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). [Downloadable!] (restricted)
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  11. 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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  16. Sanz-de-Galdeano, Anna & Turunen, Jarkko, 2006. "The euro area wage curve," Economics Letters, Elsevier, vol. 92(1), pages 93-98, July. [Downloadable!] (restricted)
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  20. 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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  21. 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)
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