DP1093 | Unemployment: Where does it Hurt?

Publication Date

31/01/1995

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Abstract

We investigate how individual well-being is affected by unemployment. Analysing panel data on life satisfaction, we find that unemployment has a large and negative effect. The lack of evidence for a similar effect of non-participation casts doubt on the natural rate view of unemployment. Further, we decompose the total well-being costs of unemployment and find that between 85% and 93% are non-pecuniary, and that only 7-15% are pecuniary. The main implication is that the benefits of employment generating policies exceed the benefits of policies that are designed to mitigate the effects of unemployment through income transfers.