Unemployment and happiness

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Recently, economists and policymakers alike have been paying more and more attention to subjective wellbeing (Graham 2010). The UK government just announced plans to start recording the nation’s happiness for the first time through a “general wellbeing index” following suggestions by France and Canada.

Unemployment, which is expected to remain high for some time across the G7 (IMF 2010), makes people unhappy. When asked “All things considered, how satisfied are you with your life as a whole these days?”, unemployed people report lower life satisfaction. These answers represent a respondent’s personal assessment of general life satisfaction, but give only limited insights into what makes people unhappy when they are unemployed – and what makes them happy when they are employed.

To shed some light on these questions, we can compare people’s general life satisfaction with their wellbeing on a moment-to-moment basis (experienced utility). A suitable tool to measure the latter type of wellbeing is the Day Reconstruction Method, which has been developed by Kahneman et al. (2004). The method combines a time-use study with the measurement of affective experiences. During a personal interview, respondents construct a diary of all activities they engaged in the preceding day. After this, they are given a list of positive and negative feelings and are asked to evaluate how strongly they felt each of these emotions during each activity listed in their diary, e.g. on a scale from 0 to 10. There are different ways to aggregate the answers. The most common procedure is to calculate the difference between the average score a respondent gives to all positive attributes and the average score of all negative attributes, yielding a measure of net affect. Kahneman et al. (2004) provide evidence of the correlation between net affect and objective circumstances that suggests that the use and interpersonal comparisons of affect measures are meaningful and add useful information to our understanding of wellbeing.

How do the unemployed feel during the day? Evidence from Germany

In a recent study (Knabe et al. 2010), we apply the Day Reconstruction Method to study the wellbeing effect of unemployment in Germany. We interviewed more than 600 employed and unemployed people, collecting data on how they used their time on a specific day, their affect levels during all the activities they were engaged in during the course of that day, their general life satisfaction, and their general life circumstances. This enables us to compare unemployed and employed people with respect to:

differences in the assessment of general life satisfaction,
differences in the assessment of emotional affects,
differences in the composition of activities during the whole course of the day, and
the difference in the duration of these activities.
Table 1 illustrates our findings. In line with previous life satisfaction research, our results first show that unemployed persons declare lower levels of satisfaction with their lives in general. Like Kahneman et al. (2004), we also find that employed people rank working and work-related activities among the least enjoyable activities. Our results are also supportive of the finding by Krueger and Mueller (2008) that the employed experience more positive feelings than the unemployed when engaged in similar activities (interestingly, this does not hold for childcare). These observations suggest that the impact of unemployment on wellbeing can be decomposed into two components.

First, there is a saddening effect of being unemployed. By comparing the emotional wellbeing of employed and unemployed persons during similar activities, we find that the unemployed report feeling more negative and less positive feelings than the employed. Second, there is a time-composition effect, i.e. the unemployed and the employed differ in how they spend their time. Becoming unemployed implies that people can substitute more enjoyable leisure activities for less enjoyable working time. This time-composition effect works against the saddening effect so that it is a priori unclear which of the two groups feels better over the course of the day

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