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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 Federal Reserve Bank of Boston in its series Public Policy Discussion Paper with number 08-1.

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Date of creation: 2008
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Handle: RePEc:fip:fedbpp:08-1
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  9. Simon Luechinger & Stephan Meier & Alois Stutzer, 2006. "Bureaucratic Rents and Life Satisfaction," IEW - Working Papers 269, Institute for Empirical Research in Economics - University of Zurich.
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  12. Alan B. Krueger, 1988. "The determinants of queues for federal jobs," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 41(4), pages 567-581, July.
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  16. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  17. Alois Stutzer & Bruno S. Frey, 2003. "Reported Subjective Well-Being: A Challenge for Economic Theory and Economic Policy," CREMA Working Paper Series 2003-07, Center for Research in Economics, Management and the Arts (CREMA).
  18. Becchetti, Leonardo & Castriota, Stefano & Giuntella, Giovanni Osea, 2010. "The effects of age and job protection on the welfare costs of inflation and unemployment," European Journal of Political Economy, Elsevier, vol. 26(1), pages 137-146, March.
  19. Sanz-de-Galdeano, Anna & Turunen, Jarkko, 2006. "The euro area wage curve," Economics Letters, Elsevier, vol. 92(1), pages 93-98, July.
  20. 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.
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  22. 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.
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  24. 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).
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