Unemployment and Well-Being

I am currently reading through detailed transcripts of 13 focus group interviews with 100 or so people claiming unemployment benefits interviewed by Michael Egan and others as part of our IRCHSS-funded wellbeing study. I am not going to go in detail through the results as we are coding them up (along with Nicola O'Connell who works in Geary also) to present and publish them in Autumn. It is not surprising perhaps that a sense of despair hangs over many of the interviews. In general, the link between wellbeing and unemployment is one of the great puzzles of behavioural economics. The effects are, always and everywhere, enormous and poorly explained by any standard economic measures. To the very best of my knowledge, no paper has offered a convincing explanation based on financial variables alone as to why unemployment generates such substantial negative effects on well-being.

A standard OLS life satisfaction regression from the European Social Survey round 4 data collected in Ireland this year and last year confirms the basic picture.  Life Satisfaction is a simple 0 to 10 variable. The bottom two categories are unemployed and actively seeking employment, and unemployed and not actively seeking employment, respectively; Health is a one-to-five variable going from 1 excellent to 5 poor; discussint is the abscence of someone to discuss intimate problems with; gender is 1 if female and 0 if male; yearseduc-n is years of education; the base category for marital status is married and the categories are separated, divorced, widowed, never married, refused. (Results very similar for ordered logit).

      Source |       SS       df       MS              Number of obs =    1759
-------------+------------------------------           F( 23,  1735) =   10.71
       Model |  980.111862    23  42.6135592           Prob > F      =  0.0000
    Residual |  6902.76364  1735  3.97853812           R-squared     =  0.1243
-------------+------------------------------           Adj R-squared =  0.1127
       Total |   7882.8755  1758  4.48400199           Root MSE      =  1.9946

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     lifesat |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
         age |  -.0802745   .1510821    -0.53   0.595    -.3765967    .2160477
      gender |  -.0723667    .100566    -0.72   0.472      -.26961    .1248766
      health |  -.5741351   .0627302    -9.15   0.000    -.6971698   -.4511004
discussint~e |  -.5104372   .1702542    -3.00   0.003    -.8443623   -.1765122
yearseduca~n |   -.019549   .0133266    -1.47   0.143    -.0456868    .0065889
_Imaritals~2 |   -.737398   .2325077    -3.17   0.002    -1.193423   -.2813732
_Imaritals~3 |  -.4806907   .3412548    -1.41   0.159    -1.150005    .1886233
_Imaritals~4 |   .4508631   .1857378     2.43   0.015     .0865694    .8151567
_Imaritals~5 |  -.4225155   .1263595    -3.34   0.001    -.6703484   -.1746826
_Imaritals~6 |   1.195028   1.426421     0.84   0.402    -1.602658    3.992713
unem~dactive |  -1.393972   .1867193    -7.47   0.000    -1.760191   -1.027754
unem~tactive |  -1.400559   .3045898    -4.60   0.000    -1.997961   -.8031574
_Ihousehol~2 |  -.0413669   .2408005    -0.17   0.864    -.5136567    .4309229
_Ihousehol~3 |  -.1167114   .2513269    -0.46   0.642    -.6096469    .3762241
_Ihousehol~4 |   .0581281   .2567047     0.23   0.821    -.4453551    .5616113
_Ihousehol~5 |   .0213614   .2638449     0.08   0.935    -.4961261     .538849
_Ihousehol~6 |  -.1041712    .273291    -0.38   0.703    -.6401856    .4318432
_Ihousehol~7 |   .1653532    .286897     0.58   0.564    -.3973471    .7280535
_Ihousehol~8 |   .1252994   .2952895     0.42   0.671    -.4538615    .7044603
_Ihousehol~9 |   .0509964   .3324416     0.15   0.878    -.6010321    .7030249
_Ihouseho~10 |   .2078842   .3228671     0.64   0.520    -.4253654    .8411338
_Ihouseho~20 |  -.0254768   .2892778    -0.09   0.930    -.5928467    .5418932
_Ihouseho~21 |   .1244626   .2963733     0.42   0.675    -.4568239     .705749
       _cons |   9.529465    .475546    20.04   0.000     8.596761    10.46217
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Addendum 1: I have added household income into the specification.The base category is bottom decile. 20 and 21 are missing income flags.

This is one of the most important topics for policy during this current recession,  both in straight-forward human terms as this is one of the clearest sources of distress that emerges from a collapsed economy and also in terms of general economic welfare. The complete sense of despair and uncertainty and the shattering of confidence that appears to follow soon after redundancy for many people is a major trigger of more long-run negative consequences of recession. It is one of the main sites where economics, psychology and other disciplines need to be engaged to generate more convincing explanations with more practical solutions. It is really frustrating to think that we have advanced so far in many different ways yet our response to unemployment seems identical to that of the 1980s and is having a predictably strangling effect on people.