DP1093 Unemployment: Where does it Hurt?

Author(s): Rainer Winkelmann, Liliana Winkelmann
Publication Date: January 1995
Keyword(s): Costs of Unemployment, Panel Data, Satisfaction
JEL(s): D6, J6
Programme Areas: Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1093

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.