You're Fired! The Causal Negative Effect of Unemployment on Life Satisfaction

31 Pages Posted: 11 Oct 2008

See all articles by Sonja C. Kassenboehmer

Sonja C. Kassenboehmer

Monash University - Centre for Health Economics

John P. Haisken-DeNew

University of Melbourne - Melbourne Institute of Applied Economic and Social Research; McMaster University, Faculty of Social Sciences, Department of Economics

Date Written: August 1, 2008

Abstract

This paper examines the impact of unemployment on life satisfaction for Germany 1984-2006, using a sample of men and women from the German Socio-Economic Panel (SOEP). Across the board we find large significant negative effects for unemployment on life satisfaction. This paper expands on previous cornerstone research from Winkelmann and Winkelmann (1998) and explicitly identifies truly exogenous unemployment entries starting from 1991. We find that for women in East and West Germany, company closures in the year of entry into unemployment produce strongly negative effects on life satisfaction over and above an overall effect of unemployment, providing prima facie evidence of a reduced outside work option, large investments in firm-specific human capital or a family constraint. The compensating variation in terms of income is dramatic, indicating enormous non-pecuniary negative effects of exogenous unemployment due to company closures.

Keywords: Unemployment, life satisfaction, company closing, gender

JEL Classification: Z1, J64, J65, J16

Suggested Citation

Kassenboehmer, Sonja C. and Haisken-DeNew, John P., You're Fired! The Causal Negative Effect of Unemployment on Life Satisfaction (August 1, 2008). Ruhr Economic Paper No. 63. Available at SSRN: https://ssrn.com/abstract=1280216 or http://dx.doi.org/10.2139/ssrn.1280216

Sonja C. Kassenboehmer

Monash University - Centre for Health Economics ( email )

Building 75, 15 Innovation Walk
Monash University
Clayton, Victoria 3800
Australia

John P. Haisken-DeNew (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

McMaster University, Faculty of Social Sciences, Department of Economics ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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