A popular myth is that the unemployed are only unhappy because they lose income. They derive gains from the increased leisure they enjoy – hence the popular notion of the “dole-bludger” at Bondi Beach enjoying the surf and sunshine while the rest of us slave away supporting their dole payments with our taxed income.
Knabe et al. (2010) join many others in disputing this view in a well-argued Economic Journal study involving German workers – here is a pre-printed version of their paper. Unemployment makes people unhappy even after controlling for loss of income (and lost social contacts and health effects). The paper further asks what makes them happy or unhappy when they are employed or unemployed.
They use the Day reconstruction Method (DRM) which asks respondents to construct a diary of the previous day’s activities along with the feelings and emotions they experienced.
The effects of unemployment are split into saddening effects – when engaged in the same activities those who are unemployed feel worse than the employed – and time composition effects which reflect the different ways the unemployed spend their time. Saddening effects can be offset by time composition effects since the unemployed enjoy more leisure.
Employed people experience greater satisfaction with their lives generally although they rank working activities as among the least preferred activities but experience more positive feelings than do the unemployed when engaged in the same activities. Unemployed people experience substantially more stress and pain.
People are unhappy when they are unemployed but happy to spend the time so released in ways other than working. It could be that working contributes to “life satisfaction” since work gives meaning to life but leisure apparently does not. However when they are unemployed they adapt to this situation – hedonic adaptation – by enjoying their leisure. This however does not compensate for the losses they experience through being unemployed even if they are income-compensated and can enjoy the extra leisure.
A similar Japanese study by Ohtake (2012) makes the point that a policy implication of this work is that if happiness is targeted governments should provide jobs rather than transfer wealth to the unemployed. For obvious reasons both are necessary. Ohtake also points out that the decline in Japanese happiness since the late 1980s can be attributed to the growing fear of unemployment and the recognition of increased inequality.