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Unemployment and Psychological Well-Being

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  • Nick Carroll

Abstract

Who records the largest drops in life satisfaction when they move into unemployment? Do men experience a larger drop in life satisfaction than women? Do Australians and Americans record a larger drop than Europeans? Using an Australian panel data-set (the Household Income and Labour Dynamics Survey of Australia), this paper finds that the unemployed in Australia report lower life satisfaction than observationally equivalent employed people (holding current income constant). Being currently unemployed is estimated to be equivalent to the loss of $42,100 annual income for men and $86,300 annual income for women. Thus, the drop in life satisfaction, after controlling for unobserved time invariant characteristics, associated with unemployment is larger for women than men. The impact of unemployment on life satisfaction is large compared to the drops in life satisfaction associated with changes in income and disability status. It is found that unemployment is less painful for men in Australia than for men in Germany and the United Kingdom. The paper hypothesises that the large fall in life satisfaction may be the result of a drop in life-time earnings, as well as a ‘psychological’ effect.

Suggested Citation

  • Nick Carroll, 2005. "Unemployment and Psychological Well-Being," CEPR Discussion Papers 492, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:492
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP492.pdf
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    References listed on IDEAS

    as
    1. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, pages 1359-1386.
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    4. Ansgar Belke & Rainer Fehn, "undated". "Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter?," German Working Papers in Law and Economics 2001-default/2001/1-1008, Berkeley Electronic Press.
    5. George A. Akerlof, 1980. "A Theory of Social Custom, of which Unemployment may be One Consequence," The Quarterly Journal of Economics, Oxford University Press, pages 749-775.
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    9. Christopher A. Pissarides, 1992. "Loss of Skill During Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, Oxford University Press, pages 1371-1391.
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    12. Winkelmann, Liliana & Winkelmann, Rainer, 1998. "Why Are the Unemployed So Unhappy? Evidence from Panel Data," Economica, London School of Economics and Political Science, pages 1-15.
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    More about this item

    Keywords

    well-being; happiness; unemployment;

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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