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Scarring: The Psychological Impact of Past Unemployment

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  • Andrew Clark
  • Yannis Georgellis

    ()

  • Peter Sanfey

    ()

Abstract

This paper provides some of the first empirical evidence on the psychological impact of past unemployment. Using eleven waves of the German socio-economic panel (GSOEP) data set, we show, as is now standard, that those currently unemployed have far lower life satisfaction scores than do the currently employed. We also show that, over the whole sample, well-being is lower the greater has been the past experience of unemployment. In this sense, unemployment scars. However, an interaction term between current and past unemployment attracts a positive coefficient. This suggests a habituation effect whereby the negative well-being effect of unemployment is much lower for those who have been unemployed more often in the past. We also use the panel aspect of our data to present some evidence that those who suffer greater falls in well-being on entering unemployment are less likely to remain unemployed one year later. Together these findings offer a psychological explanation of persistent unemployment.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9903.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9903.

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Date of creation: Jan 1999
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Handle: RePEc:ukc:ukcedp:9903

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Keywords: Unemployment; Life Satisfaction; Habituation; Hysteresis;

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References

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  1. Akerlof, George A & Yellen, Janet L, 1985. "Unemployment through the Filter of Memory," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 747-73, August.
  2. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  3. 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.
  4. Ceema Namazie & Peter Sanfey, 1998. "Happiness in transition: the case of Kyrgyzstan," LSE Research Online Documents on Economics 6591, London School of Economics and Political Science, LSE Library.
  5. 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.
  6. Andrew Clark & Yannis Georgellis & Peter Sanfey, 1997. "Job Satisfaction, Wage Changes and Quits: Evidence from Germany," Studies in Economics 9711, Department of Economics, University of Kent.
  7. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  8. Arulampalam, Wiji & Booth, Alison L & Taylor, Mark P, 2000. "Unemployment Persistence," Oxford Economic Papers, Oxford University Press, vol. 52(1), pages 24-50, January.
  9. 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.
  10. Freeman, Richard B, 1978. "Job Satisfaction as an Economic Variable," American Economic Review, American Economic Association, vol. 68(2), pages 135-41, May.
  11. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
  12. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  13. Oswald, A.J., 1997. "Happiness and Economic Performance," Papers 18, Centre for Economic Performance & Institute of Economics.
  14. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
  15. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March.
  16. Paul Gregg, 1996. "It Takes Two: Employment Polarisation in the OECD," CEP Discussion Papers dp0304, Centre for Economic Performance, LSE.
  17. Heckman, James J & Borjas, George J, 1980. "Does Unemployment Cause Future Unemployment? Definitions, Questions and Answers from a Continuous Time Model of Heterogeneity and State Dependence," Economica, London School of Economics and Political Science, vol. 47(187), pages 247-83, August.
  18. Theodossiou, I., 1998. "The effects of low-pay and unemployment on psychological well-being: A logistic regression approach," Journal of Health Economics, Elsevier, vol. 17(1), pages 85-104, January.
  19. Clark, Andrew E., 1999. "Are wages habit-forming? evidence from micro data," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 179-200, June.
  20. Korpi, Tomas, 1997. "Is utility related to employment status? Employment, unemployment, labor market policies and subjective well-being among Swedish youth," Labour Economics, Elsevier, vol. 4(2), pages 125-147, June.
  21. Whelan, Christopher T. & Hannan, Damian F. & Creighton, Sean, 1991. "Unemployment, Poverty and Psychological Distress," Research Series, Economic and Social Research Institute (ESRI), number GRS150.
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