NCPA - National Center for Policy Analysis

Unemployment and Happiness

October 24, 2002

One worry of policy makers worldwide is persistent unemployment. The traditional explanation cites skill erosion: the skills of those unemployed for a long time tend to disappear as new technologies replace those they are familiar with.

Now some researchers have a different explanation, based on the long-term psychological effect of joblessness. They suggest that past unemployment can have an important impact on well-being and tested their thesis with research on 25,000 men and women. They conclude:

  • Unemployment has a "scarring effect": employed men and women are systematically happier than those unemployed and satisfaction is greater for those who suffered less unemployment.
  • Unemployment today affects happiness now and up to three years in the future, but as the number of unemployment spells rise, the habituation effect starts to work, reducing the felt unhappiness from unemployment.
  • Researchers consider the "habituation effect" a key finding: men unemployed 60 percent of the time over the three years of the study become indifferent between working and not working.
  • These effects are not as strong with women.

Although some caveats may be made about how happiness is measured, these findings add another factor in explaining the risks of persistent unemployment. And the intriguing aspect of the work lies in the fact that, unlike in previous theories, the unemployed compare their current state with the past (and not with the state of others).

Source: "Scarring and Habituation," Economic Intuition, Fall 2001; based on Andrew E. Clark, Yannis Georgellis and Peter Sanfey, "Scarring: The psychological Impact of Past Unemployment," Economica, May 2001.


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