Scarring: The Psychological Impact of Past Unemployment
Paris School of Economics (PSE); Institute for the Study of Labor (IZA)
University of Kent, Canterbury - Kent Business School
European Bank for Reconstruction and Development (EBRD)
Economica, Vol. 68, May 2001
This paper considers the psychological impact of past unemployment. Using eleven waves of German panel data, we show that life satisfaction is lower not only for the current unemployed (relative to the employed), but also for those with higher levels of past unemployment. However, the negative well-being effect of current unemployment is weaker for those who have been unemployed more often in the past. The panel data also reveal some evidence that those suffering greater falls in well-being on entering unemployment are less likely to remain unemployed one year later. Together these findings offer a psychological explanation of persistent unemployment.
Keywords: Unemployment, Life Satisfaction, Habituation, Hysteresis
JEL Classification: D10, J28, J63
Date posted: January 26, 2002
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