The Impact of Employment Transitions on Subjective Well-Being

Evidence from the Great Recession and Its Aftermath

by Michael D. Hurd, Susann Rohwedder, Caroline Tassot

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We use 42 waves of the Financial Crisis Surveys collected in the American Life Panel to estimate the causal effect of work transitions, in particular unemployment and reemployment, on subjective well-being (SWB) between November 2009 and April 2013 in the US. We find unemployment to negatively affect evaluative and experienced SWB in the first month of unemployment, with very little changes in subsequent months, thus indicating a lack of adaptation. Reemployment leads to significant increases in SWB, with no evidence of adaptation after the first month. The consequences of work transitions spill over at the household level, with individuals being affected by their spouses' work transitions. We find no evidence of a "scarring" effect of unemployment. Given this lack of adaption to unemployment, policies supporting the unemployed are necessary. Financial support is crucial, but should also be complemented with measures targeting the non-pecuniary loss in SWB suffered due to unemployment, for instance through the provision of a support network or job search assistance.

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