Abstract
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.
Winkelmann, Liliana