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

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Listed:
  • Simon Luechinger
  • Stephan Meier
  • Alois Stutzer

Abstract

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.

Suggested Citation

  • Simon Luechinger & Stephan Meier & Alois Stutzer, 2008. "Why Does Unemployment Hurt the Employed?: Evidence from the Life Satisfaction Gap between the Public and Private Sectors," SOEPpapers on Multidisciplinary Panel Data Research 106, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp106
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    Cited by:

    1. Nicole Uhde, 2010. "Soziale Sicherheit und Lebenszufriedenheit: Empirische Ergebnisse," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(4), pages 407-439, November.
    2. Thomas Braendle & Alois Stutzer, 2008. "Bureaucrats in Parliament: Theory and Evidence on Its Determinants in Germany," CREMA Working Paper Series 2008-23, Center for Research in Economics, Management and the Arts (CREMA).
    3. Wyss, Simone, 2008. "Ist die relative Schlechterstellung niedrigqualifizierter Arbeitskräfte Mythos oder Realität? - Eine Analyse der Schweizer Disparität von Lohn- und Arbeitslosenquote nach Qualifikation," Working papers 2008/06, Faculty of Business and Economics - University of Basel.

    More about this item

    Keywords

    Unemployment; life satisfaction; job security; public sector;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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