Abstract
While rising unemployment generally reduces people’s happiness, researchers argue that there is a compensating social-norm effect for the unemployed individual, who might suffer less when it is more common to be unemployed. This empirical study rejects this thesis for German panel data, however, and finds that individual unemployment is even more hurtful when regional unemployment is higher. On the other hand, an extended model that separately considers individuals who feel stigmatised from living off public funds yields strong evidence that this group of people does in fact suffer less when the normative pressure to earn one’s own living is lower. A comprehensive discussion reconciles these findings with the existing research and concludes that to find evidence for the often described social-norm effect it is worthwhile to analyse disutility associated with benefit receipts.
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Notes
For general surveys in happiness research, see, e.g., Frey and Stutzer (2002, 2005), Frey (2008) and Van Praag and Ferrer-i-Carbonell (2008). Studies specifically investigating the disutility effects of individual unemployment include those of Clark and Oswald (1994), Winkelmann and Winkelmann (1998), Carroll (2007), Chadi (2010) and Knabe and Rätzel (2011).
While Clark (2003) also examines the role of unemployment among other reference groups, namely, unemployment at the partner and household levels, the discussion in this study focuses only on the relationship between individual unemployment and others’ unemployment at the regional level.
Note that, for reasons of simplicity, and in accordance with the original definition of the social norm, the term “living off other people” is used throughout the paper despite its negative connotations.
As can be seen in Table 2, the division of Germany into regions in this study differs (slightly) from the official classification of the German federal states. Note that, in contrast to the SOEP data, the available unemployment data are not reported separately for East and West Berlin. On the other hand, the federal states of Rhineland-Palatinate and Saarland are not reported separately by the SOEP.
To be precise, the law defines persons as either directly eligible or as part of a “Bedarfsgemeinschaft”, which, in order to reduce complexity, is treated here as a regular household.
Note that the model considers the above assumption of no migration between regions.
Recall that higher levels of norm strength are expressed in smaller values in Table 2.
Note that Bavaria is associated with very strong norms (see Table 2), whereas NRW appears to be average in regard to unemployment and norms.
This is also confirmed by additional regressions on the basis of data from the same period of time (1984–2006) as in the Clark et al. studies. Using the same methods and controls, their “social norm of unemployment”-effect (found only for men) disappears as soon as the data is restricted to the western German regions.
Note that the geometric mean makes more sense compared to the arithmetic mean, since the latter would give more weight to outliers with large values. According to some additional regressions, the outcomes are nevertheless quite similar in both cases, so that the main findings are not affected by this aspect anyway.
Thanks to the de-meaning of norm strength levels and unemployment rates, the coefficient for each group can be interpreted as a mean effect for inhabitants of regions with average unemployment and average normative pressure. Hence, in line with the literature, the OLS outcomes indicate the unemployment-induced disutility to be about 0.5 points on the life satisfaction scale, and benefit receipts on average slightly more than 0.1 points.
The full collection of norm measures obtained from five different social surveys and each correlation matrix showing conformity with the SOEP-based measures in Table 2 are available from the author upon request.
Note that, following the insights from above, these alternative estimations with social-beliefs proxies are carried out without additional interactions concerning the East-West disparity.
This can be observed when comparing the third (EB03) and the fourth measure (EB04) in Table 10 The idea behind these two measures is that the more interviewees consider disadvantaged people to be lazy, the stronger the normative pressure to not live on public funds. However, there is not even a truly significant correlation between these two “laziness” variables, so varying outcomes in the regression analysis are no surprise.
Apart from this aspect, the more technical idea behind starting with data from 1999 is a change in how the household questionnaires ask interviewees about benefit receipts.
Note that the average unemployment rate here is 11.32%.
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Acknowledgments
The author is grateful to Daniel Arnold, Tobias Böhm, Daniel Chen, Clemens Hetschko, Andreas Knabe, Tobias Pfaff, Ronnie Schöb, Mark Trede, Ulrich van Suntum, the anonymous referees as well as the participants of the 7th International SOEP Symposium, the HEIRs conference on markets and happiness and seminars at the University of Muenster for valuable comments and advice.
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Chadi, A. Regional unemployment and norm-induced effects on life satisfaction. Empir Econ 46, 1111–1141 (2014). https://doi.org/10.1007/s00181-013-0712-7
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DOI: https://doi.org/10.1007/s00181-013-0712-7
Keywords
- Social norms
- Regional unemployment
- Individual unemployment
- Well-being
- Social benefits
- Labour market policies