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The unemployed are unhappier than the employed even when income-compensated

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. (1816)

5 comments to The unemployed are unhappier than the employed even when income-compensated

  • conrad

    Perhaps I’m not German or Japanese enough, but last time I was unemployed (which admittedly was ages ago), I had a great time, although I had enough money not to worry about things. Indeed, far better than having to go to work every day and listen to cretins talk about their great (sic) plans.

  • hc

    That’s a fair enough comment. That the two cases I cite are for Germans and Japanese does obviously provide a fairly biased assessment of the human proclivity to work. I am sure that Australians, South Sea Islanders and the Thai would have somewhat different attitudes.

    I’ve read that the central result here has been verified for other cultures – if I get a chance I’ll post further material.

  • conrad

    I have another bit of info about happiness research in case you are interested — I believe Martin Seligman (he started what is now known as positive psychology) is coming out to give a talk in Melbourne sometime soon (Adelaide Uni got him for a month as thinker in residence). He has a TED talk as well that is probably worth looking at and probably similar to his talk he will give, which might be simpler to look at in case you are interested in looking at non-economic perspectives on happiness.

  • hc

    It seems the Germans speakers do have lower happiness than French speakers when they are unemployed but that overall they are happier than the French speakers. The last bit surprises.

  • conrad

    I just looked at that — perhaps it’s not in the economics literature much, but these single question studies (“How satisified are you with your life”) wouldn’t crack it in many other research areas. The problem is that these single questions have poor validity, since they simply arn’t constrained enough such that people answer them based on the same assumptions. If people want to do good studies that won’t be criticized down the track (quite fairly), they really need to move past this and actually use decent (often short) scales which have been validated and where it is clearer what is being measured. Given this is already done in other areas, this is a problem with different disciplines ignoring each others work.

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