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Well-being Consequences of Unemployment in Europe

  • Namkee Ahn
  • Juan Ramón García
  • Juan F. Jimeno

Among the working age population, one of the most damaging individual experience is found to be unemployment. Many previous studies have confirmed devastating effects of unemployment on individual well-being, both pecuniary and non-pecuniary. Using the data from the European Community Household Panel survey we examine the factors which affect unemployed workers’ well- being (satisfaction) with respect to their situations in activity, income, housing, leisure time and health in Europe. Unemployment incidence reduces substantially the satisfaction levels with main activity and finance, while it increases substantially the satisfaction level with leisure time. With respect to health, it has a small negative effect. Unemployment duration, on the other hand, shows a small negative effect on individual well-being, suggesting that unemployment has lasting and aggravating effect over the spells, contradicting the theory of adaptation. Three other results are worth mentioning. First, there are large cross-country differences in the well-being consequences of unemployment. Much smaller effects of unemployment are observed in Denmark and the Netherlands than in other countries. A part of this difference seems to be due to the differences in functioning and regulations in the labor market. In Denmark and the Netherlands, unemployment rate is lower, whose spells are shorter, and unemployment protection (unemployment benefits and active labor market policies) is greater. Second, with respect to methodology, there are small differences between cross-section and panel estimates, suggesting small bias due to unobserved fixed effects in cross-section estimation. Finally, among the unemployed, non-pecuniary factors, such as job prospect, health, and social relation, show significant effects on individual well-being, along with household income.

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Paper provided by FEDEA in its series Working Papers with number 2004-11.

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Handle: RePEc:fda:fdaddt:2004-11
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  1. Christopher J. Ruhm & William E. Black, 2001. "Does Drinking Really Decrease in Bad Times?," NBER Working Papers 8511, National Bureau of Economic Research, Inc.
  2. 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.
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  6. Namkee Ahn, & Juan F. Jimeno & Arantza Ugidos, . "“Mondays at the sun”: Unemployment, Time Use, and Consumption Patterns in Spain," Working Papers 2003-18, FEDEA.
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  10. Ruhm, Christopher J., 2005. "Healthy living in hard times," Journal of Health Economics, Elsevier, vol. 24(2), pages 341-363, March.
  11. Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
  12. Martin Browning & Anne Møller Danø & Eskil Heinesen, 2003. "Job Displacement and Health Outcomes: A Representative Panel Study," CAM Working Papers 2003-14, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  13. 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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