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Does Unemployment Hurt Less if There Is More of It Around?: A Panel Analysis of Life Satisfaction in Germany and Switzerland

Listed author(s):
  • Daniel Oesch
  • Oliver Lipps

This paper examines the existence of a habituation effect to unemployment: Do the unemployed suffer less from job loss if unemployment is more widespread, if their own unemployment lasts longer and if unemployment is a recurrent experience? The underlying idea is that unemployment hysteresis may operate through a sociological channel: if many people in the community lose their job and remain unemployed over an extended period, the psychological cost of beingunemployed diminishes and the pressure to accept a new job declines. We analyze this question with individual-level data from the German Socio-Economic Panel (1984-2009) and the Swiss Household Panel (2000-2009). We find no evidence for a mitigating effect of high surrounding unemployment on unemployed individuals' subjective well-being: Becoming unemployed hurts as much when regional unemployment is high as when it is low. Likewise, the strongly harmful impact of being unemployed on well-being does not wear off over time, nor do repeated episodes of unemployment make it any better. It thus appears doubtful that an unemployment shock becomes persistent because the unemployed become used to, and hence reasonably content with, being without a job.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.377429.de/diw_sp0393.pdf
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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 393.

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Length: 29 p.
Date of creation: 2011
Handle: RePEc:diw:diwsop:diw_sp393
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  1. Assar Lindbeck & Sten Nyberg & Jörgen W. Weibull, 1999. "Social Norms and Economic Incentives in the Welfare State," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 1-35.
  2. Olivier Jean Blanchard, 1988. "Unemployment: Getting the Questions Right--and Some of the Answers," Working papers 502, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Andrew E. Clark, 2003. "Unemployment as a Social Norm: Psychological Evidence from Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 289-322, April.
  4. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages 222-243, 06.
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  7. Andrew E. Clark, 2006. "A Note on Unhappiness and Unemployment Duration," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(4), pages 291-308.
  8. Beatrix Brügger & Rafael Lalive & Josef Zweimüller, 2009. "Does Culture Affect Unemployment? Evidence from the Röstigraben," CESifo Working Paper Series 2714, CESifo Group Munich.
  9. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
  10. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  11. 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.
  12. Aberg, Rune, 2001. "Equilibrium Unemployment, Search Behaviour and Unemployment Persistency," Cambridge Journal of Economics, Oxford University Press, vol. 25(2), pages 131-147, March.
  13. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  14. Nick Carroll, 2007. "Unemployment and Psychological Well-being," The Economic Record, The Economic Society of Australia, vol. 83(262), pages 287-302, 09.
  15. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  16. Nik Theodore, 2007. "New Labour at work: long-term unemployment and the geography of opportunity," Cambridge Journal of Economics, Oxford University Press, vol. 31(6), pages 927-939, November.
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