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Why Does Unemployment Hurt the Employed?: Evidence from the Life Satisfaction Gap Between the Public and the Private Sector
- Journal of Human Resources
- University of Wisconsin Press
- Volume 45, Number 4, Fall 2010
- pp. 998-1045
- 10.1353/jhr.2010.0024
- Article
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High unemployment rates entail substantial costs to the working population in terms of reduced subjective well-being. This paper studies the importance of individual economic security, in particular job security, by exploiting sector-specific institutional differences in the exposure to economic shocks. Public servants have stricter dismissal protection and face a lower risk of their organization becoming bankrupt than private sector employees. The empirical results from individual panel data for Germany and repeated cross-sectional data for the United States and Europe show that private sector employees' subjective well-being reacts indeed much more sensitive to fluctuations in unemployment rates than public sector employees'.