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

  • Simon Luechinger
  • Stephan Meier
  • Alois Stutzer

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 DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 106.

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Length: 37 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp106
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  7. 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.
  8. 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.
  9. 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.
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  11. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May.
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  14. Armin Falk & Josef Zweimüller, . "Unemployment and Right-Wing Extremist Crime," IEW - Working Papers 235, Institute for Empirical Research in Economics - University of Zurich.
  15. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  16. Richard B. Freeman, 1985. "How do Public Sector Wages and Employment Respond to Economic Conditions," NBER Working Papers 1653, National Bureau of Economic Research, Inc.
  17. 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).
  18. 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.
  19. Sanz-de-Galdeano, Anna & Turunen, Jarkko, 2006. "The euro area wage curve," Economics Letters, Elsevier, vol. 92(1), pages 93-98, July.
  20. Luechinger, Simon & Meier, Stephan & Stutzer, Alois, 2006. "Bureaucratic Rents and Life Satisfaction," IZA Discussion Papers 1964, Institute for the Study of Labor (IZA).
  21. Nicola Fuchs-Schundeln & Matthias Schundeln, 2005. "Precautionary Savings and Self-Selection - Evidence from the German Reunification "Experiment"," Harvard Institute of Economic Research Working Papers 2069, Harvard - Institute of Economic Research.
  22. DiTella, Rafael & MacCulloch, Robert, 1999. "Partisan social happiness," ZEI Working Papers B 22-1999, ZEI - Center for European Integration Studies, University of Bonn.
  23. Anna Öster & Jonas Agell, 2007. "Crime and Unemployment in Turbulent Times," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 752-775, 06.
  24. Andrew Clark, 2001. "Unemployment As A Social Norm: Psychological Evidence from Panel Data," DELTA Working Papers 2001-17, DELTA (Ecole normale supérieure).
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