Happiness and Unemployment: A Panel Data Analysis for Germany

We use data from the German Socio-Economic Panel to investigate how individual happiness is affected by unemployment. Unemployment has a large and negative effect even after controlling for individual specific fixed effects. Nonparticipation, in contrast, is much less harmful to happiness. Further, we decompose the total well-being costs of unemployment and find that well above three quarters are non-pecuniary, and below one quarter pecuniary. One implication is that income support programs for the unemployed do very little at mitigating the adverse effects of unemployment, and such transfers are unlikely to generate unemployment. Happiness and Unemployment: A Panel Data Analysis for Germany Liliana Winkelmann University of Canterbury Rainer Winkelmann University of Canterbury and CEPR, London This research was supported by funds from The German Marshall Fund of the United States. We thank Andrew Oswald and three anonymous referees for helpful comments on an earlier draft.