Subjective well-being in times of unemployment

Abstract

When thinking about the disadvantages of becoming unemployed, the mind instantly goes to the economic side of things. However, it can also cause psychological and emotional problems whereby the magnitude of problems might differ depending on certain individual characteristics. Some of the ones that are checked for in this study are marital status, gender, age and household income. This study revisits the relationship between unemployment and subjective well-being, with an extra emphasis on how this relationship varies across these previously mentioned characteristics. The rich and modern panel data from Germany used in this thesis made it possible to run a series of regression models including OLS, random effects and fixed effects to examine both the magnitude and heterogeneity of the psychological impact of being unemployed. Our findings confirmed our hypothesis that unemployment is significantly associated with lower life satisfaction and worse for men compared to women in some subgroups. Initial OLS and random effects models suggest that men experience a larger decline in well-being than women when unemployed. However, the results from the fixed effect were not statistically significant, which suggests that the previous models may suffer from hidden factors which affect the results. With further testing, a significant result was found with the fixed effects model when limiting the regression to only those who are married and with at least one child in the household.