Unemployment and Unhappiness: The Role of Pecuniary Factors

Abstract

The happiness literature finds that unemployment substantially decreases subjective well-being even after controlling for income. Whereas existing research explains these results through nonpecuniary costs, the present study suggests that the root cause is pecuniary. The unemployed have insufficient income to support their living costs, reducing both financial satisfaction and life satisfaction. The detrimental effects of unemployment decrease considerably if different income controls are used. Nonpecuniary theories have less explanatory power than, but are compatible with, pecuniary factors. Moreover, nonpecuniary explanations contain both pecuniary and nonpecuniary dimensions. The above evidence suggests that pecuniary factors play an important role in the relationship between subjective well-being and unemployment. Policy implications are discussed.

Keywords: unemployment, subjective well-being, life satisfaction, pecuniary cost, subjective financial evaluation

JEL Classification: D6; E2; I3; J6