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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.

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," Public Policy Discussion Paper 08-1, Federal Reserve Bank of Boston.
  • Handle: RePEc:fip:fedbpp:08-1

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    References listed on IDEAS

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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," Working papers 2008/06, Faculty of Business and Economics - University of Basel.

    More about this item


    Unemployment ; Job security;

    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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