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Why Does Unemployment Hurt the Employed?: Evidence from the Life Satisfaction Gap Between the Public and the Private Sector

  • Simon Luechinger
  • Stephan Meier
  • Alois Stutzer

High unemployment rates 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, 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 becoming bankrupt than private sector employees. The empirical results from individual panel data for Germany and repeated cross-sectional data for the United States and Europe show that private sector employees’ subjective well-being reacts indeed much more sensitive to fluctuations in unemployment rates than public sector employees’.

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File URL: http://jhr.uwpress.org/cgi/reprint/45/4/998
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Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

Volume (Year): 45 (2010)
Issue (Month): 4 ()
Pages: 998-1045

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Handle: RePEc:uwp:jhriss:v:45:y:2010:i:4:p:998-1045
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