Discussion paper

Unemployment and psychological well-being

10 Aug 2005

Who records the largest drops in life satisfaction when they move into unemployment? Using an Australian panel data-set (HILDA, the Household Income and Labour Dynamics Survey of Australia), Nick Carroll finds that the unemployed in Australia report lower life satisfaction than observationally equivalent employed people (holding current income constant). Being currently unemployed is estimated to be equivalent to the loss of $42,100 annual income for men and $86,300 annual income for women.

The impact of unemployment on life satisfaction is large compared to the drops in life satisfaction associated with changes in income and disability status. It is found that unemployment is less painful for men in Australia than for men in Germany and the United Kingdom. The paper hypothesises that the large fall in life satisfaction may be the result of a drop in life-time earnings, as well as a 'psychological' effect.

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