The Impact of Unemployment on Individual Well-Being in the EU

Among the working-age population, one of the most damaging individual experiences is unemployment. Many previous studies have confirmed the devastating effects of unemployment on individual well-being, both pecuniary and non-pecuniary. Using the data from the European Community Household Panel survey, we examine the factors that affect unemployed workers’ well-being with respect to their situations in their main vocational activity, income, housing, leisure time and health in Europe. Unemployment substantially reduces an individual’s satisfaction levels with his or her main vocational activity and finance, while it greatly increases his or her satisfaction levels with leisure time. With respect to health, it has a small negative effect. Unemployment duration also has a small, negative impact on individual well-being, suggesting that unemployment has a lasting and aggravating effect throughout the spells of unemployment, contradicting the theory of adaptation. Three other results are worth mentioning. First, there are large cross-country differences in the consequences of unemployment on individual well-being. Fewer effects resulting from unemployment are observed in Denmark and the Netherlands than in other countries. Part of this difference seems to be the result of the differences in the regulations and functioning of the labour market. In these two countries, where the unemployment rate is lower, the spells are shorter and unemployment protection (unemployment benefits and active labour market policies) is greater. Second, with respect to methodology, there are small differences between the cross-section and panel estimates, suggesting a small bias as a result of unobserved fixed-effects in the cross-section estimation. Finally, among the unemployed, non-pecuniary factors – such as job prospects, health and social relations – show significant effects on individual well-being, along with household income.