Why Does Unemployment Hurt the Employed? Evidence from the Life Satisfaction Gap between the Public and Private Sectors

37 Pages Posted: 2 Apr 2008

See all articles by Simon Luechinger

Simon Luechinger

University of Lucerne

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Date Written: March 11, 2008

Abstract

High rates of unemployment entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular, job security, in workers' well-being by exploiting sector-specific institutional differences in the exposure to economic shocks. Public servants have stricter dismissal protection and face a lower risk of their organization's bankruptcy than do private sector employees. The empirical results for individual panel data for Germany and repeated cross-sectional data for the United States and the European Union show that the sensitivity of subjective well-being to fluctuations in unemployment rates is much lower in the public sector than in the private. This suggests that increased economic insecurity constitutes an important welfare loss associated with high general unemployment.

Keywords: unemployment, life satisfaction, job security, public sector

JEL Classification: E24, I31, J30, J45, J64

Suggested Citation

Luechinger, Simon and Meier, Stephan and Stutzer, Alois, Why Does Unemployment Hurt the Employed? Evidence from the Life Satisfaction Gap between the Public and Private Sectors (March 11, 2008). FRB of Boston Public Policy Discussion Paper No. 08-1 SOEPPaper No. 106. Available at SSRN: https://ssrn.com/abstract=1114939 or http://dx.doi.org/10.2139/ssrn.1114939

Simon Luechinger

University of Lucerne ( email )

Frohburgstrasse 3
P.O. Box 4466
Lucerne, 6002
Switzerland

Stephan Meier (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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