Happier People Are Less Likely to Be Unemployed: Evidence from Longitudinal Data in Germany

54 Pages Posted: 27 Apr 2017

See all articles by Kelsey O'Connor

Kelsey O'Connor

STATEC Research; IZA Institute of Labor Economics

Date Written: April 20, 2017

Abstract

Psychological measures are gaining recognition as important determinants of labor performance. This paper demonstrates that people reporting higher subjective well-being (SWB) are less likely to be unemployed. A one standard deviation increase in lagged SWB is associated with approximately a one percentage point decrease in the probability of being unemployed. The mechanisms include changes in the Big-Five personality traits. Within-person increases in extraversion or emotional stability, for example, are associated with increases in SWB. The results also show that the magnitude of the SWB-unemployed relation is substantially larger for people who are currently unemployed, but also too much SWB can be a bad thing, because the SWB-unemployed relation is quadratic. The results are based on separate dynamic and fixed-effects regressions, and supported by Arellano and Bond, generalized methods of moments, type estimations. The data come from the German Socio-Economic Panel (1984-2013).

Keywords: Unemployment, Happiness, Life Satisfaction, Big-Five Personality Traits, Subjective Well-Being, Character Skills

JEL Classification: I31, H11, J64, J24

Suggested Citation

O'Connor, Kelsey, Happier People Are Less Likely to Be Unemployed: Evidence from Longitudinal Data in Germany (April 20, 2017). USC-INET Research Paper No. 17-17, Available at SSRN: https://ssrn.com/abstract=2959118 or http://dx.doi.org/10.2139/ssrn.2959118

IZA Institute of Labor Economics ( email )

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

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