Discussion paper

DP1093 Unemployment: Where does it Hurt?

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.


Winkelmann, R and L Winkelmann (1995), ‘DP1093 Unemployment: Where does it Hurt?‘, CEPR Discussion Paper No. 1093. CEPR Press, Paris & London. https://cepr.org/publications/dp1093