Advanced Search
MyIDEAS: Login to save this paper or follow this series

Quantifying the psychological costs of unemployment: the role of permanent income

Contents:

Author Info

  • Andreas Knabe

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Steffen Rätzel

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Unemployment causes significant losses in the quality of life. In addition to reducing individual income, it also creates non-pecuniary, psychological costs. We quantify these non-pecuniary losses by using the life satisfaction approach. In contrast to previous studies, we apply Friedman’s (1957) permanent income hypothesis by distinguishing between temporary and permanent effects of income changes. This allows us to account for intertemporal spillovers of income compensations. Our results show that, without this distinction, the non-pecuniary costs of unemployment are overestimated by roughly one-third. Nevertheless, the non-pecuniary costs of unemployment with this modified quantification method still amount to 2.3 (1.5) times the pure pecuniary costs of unemployment for men (women).This confirms the high value of work for life satisfaction.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2007_Dateien/2007_12.pdf
File Function: First version, 2007
Download Restriction: no

Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 07012.

as in new window
Length: 16 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:mag:wpaper:07012

Contact details of provider:
Postal: Universitätsplatz 2, Gebäude W und I, 39106 Magdeburg
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC

Related research

Keywords: unemployment; happiness; life satisfaction; permanent income;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. 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.
  2. Di Tella, Rafael & MacCulloch, Robert J. & Oswald, Andrew J., 2001. "The Macroeconomics of Happiness," The Warwick Economics Research Paper Series (TWERPS) 615, University of Warwick, Department of Economics.
  3. Bernard M.S. van Praag & Barbara E. Baarsma, 2004. "Using Happiness Surveys to Value Intangibles: The Case of Airport Noise," CESifo Working Paper Series 1163, CESifo Group Munich.
  4. DeJuan, Joseph P. & J. Seater, John, 1999. "The permanent income hypothesis:: Evidence from the consumer expenditure survey," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 351-376, April.
  5. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  6. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
  7. Bruno S. Frey & Simon Luechinger & Alois Stutzer, 2004. "Valuing Public Goods: The Life Satisfaction Approach," CESifo Working Paper Series 1158, CESifo Group Munich.
  8. Bernard M.S. van Praag & P. Frijters & A. Ferrer-i-Carbonell, 2002. "The Anatomy of Subjective Well-being," Tinbergen Institute Discussion Papers 02-022/3, Tinbergen Institute.
  9. Bruno S. Frey & Alois Stutzer, 2000. "Happiness, Economy and Institutions," CESifo Working Paper Series 246, CESifo Group Munich.
  10. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
  11. Clark, Andrew E., 2006. "A Note on Unhappiness and Unemployment Duration," IZA Discussion Papers 2406, Institute for the Study of Labor (IZA).
  12. Joseph P. Dejuan & John J. Seater, 2006. "A Simple Test of Friedman's Permanent Income Hypothesis," Economica, London School of Economics and Political Science, vol. 73(289), pages 27-46, 02.
  13. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
  14. Welsch, Heinz, 2002. "Preferences over Prosperity and Pollution: Environmental Valuation Based on Happiness Surveys," Kyklos, Wiley Blackwell, vol. 55(4), pages 473-94.
  15. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  16. 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.
  17. Katrin Rehdanz & David J. Maddison, 2003. "Climate and Happiness," Working Papers FNU-20, Research unit Sustainability and Global Change, Hamburg University, revised Apr 2003.
  18. Costas Meghir, 2004. "A retrospective on Friedman's theory of permanent income," IFS Working Papers W04/01, Institute for Fiscal Studies.
  19. 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.
  20. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Helliwell, John & Huang, Haifang, 2011. "New measures of the costs of unemployment: Evidence from the subjective well-being of 2.3 million Americans," Working Papers 2011-3, University of Alberta, Department of Economics.
  2. Eva M. Berger, 2007. "The Power of Monthly Data in the GSOEP: How the Chernobyl Catastrophe Affected People's Life Satisfaction and Environmental Concerns," SOEPpapers on Multidisciplinary Panel Data Research 73, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Francesco Figari & Herwig Immervoll & Horacio Levy & Holly Sutherland, 2007. "Inequalities within Couples: Market Incomes and the Role of Taxes and Benefits in Europe," SOEPpapers on Multidisciplinary Panel Data Research 74, DIW Berlin, The German Socio-Economic Panel (SOEP).
  4. Grogan, Louise & Koka, Katerina, 2013. "Economic crises and wellbeing: Social norms and home production," Journal of Economic Behavior & Organization, Elsevier, vol. 92(C), pages 241-258.
  5. Schöb, Ronnie, 2007. "Soziale Grundsicherung und Beschäftigung," Discussion Papers 2007/12, Free University Berlin, School of Business & Economics.
  6. repec:ese:iserwp:2007-28 is not listed on IDEAS
  7. Ronnie Schöb, 2013. "Unemployment and Identity," CESifo Economic Studies, CESifo, vol. 59(1), pages 149-180, March.
  8. Heike Heidemeier & Ursula Staudinger, 2012. "Self-Evaluation Processes in Life Satisfaction: Uncovering Measurement Non-Equivalence and Age-Related Differences," Social Indicators Research, Springer, vol. 105(1), pages 39-61, January.
  9. John F. Helliwell & Haifang Huang, 2011. "New measures of the costs of unemployment: Evidence from the subjective well-being of 3.3 million Americans," NBER Working Papers 16829, National Bureau of Economic Research, Inc.
  10. Eva M. Berger, 2008. "A Note on the High Stability of Happiness: The Minimal Effects of a Nuclear Catastrophe on Life Satisfaction," Discussion Papers of DIW Berlin 803, DIW Berlin, German Institute for Economic Research.
  11. Timothy J. Bartik, 2014. "How Effects of Local Labor Demand Shocks Vary with Local Labor Market Conditions," Upjohn Working Papers and Journal Articles 14-202, W.E. Upjohn Institute for Employment Research.
  12. repec:ese:emodwp:em6-07 is not listed on IDEAS

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. SOEP based publications

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mag:wpaper:07012. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guido Henkel).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.