1. Introduction
Unemployment makes people unhappy. When asked “All things considered, how satisfied are
you with your life as a whole these days?”, unemployed report lower life satisfaction than
employed people. This holds even after controlling for a large number of other influences,
including the respondents’ income, social contacts or health.1 These answers represent a
respondent’s personal assessment of general life satisfaction, but give only limited insights
into what makes people unhappy when they are unemployed or what makes them happy when
they are employed.
Life satisfaction is a cognitive, judgmental construct of happiness. When asked to assess
their satisfaction with life, respondents have to create a reference framework of what
constitutes a satisfied life (Diener et al. 1985). To do so, people compare their own life
circumstances with those of other people at the same time and with their own life at other
points in time (Dolan and Kahneman 2008). They also ask about purpose and meaning in life,
something that certainly transcends day-to-day experiences (Loewenstein 2009). Employment
plays a crucial role in judging one’s life satisfaction. People usually see “being employed” as
a desirable aspect of life because it gives their lives meaning and helps them to obey a cultural
work ethic.2 If people become unemployed, they deviate from this reference framework and
are hardly able to adapt to the new situation (Lucas et al. 2004).
Instead of asking about their life satisfaction in general one could ask people about how
they feel in specific situations during the course of a day. This yields an alternative measure
of subjective well-being that assesses the emotional, affective components of happiness.
Abstract issues, such as a transcendental purpose of life or social comparisons, play a much
smaller role for such momentary hedonic well-being, i.e. experienced utility, than for life
satisfaction. The attention drawn to these issues when asked about general life satisfaction is
not present in their daily experiences (Kahneman et al. 2006). It would thus be conceivable
that the unemployed are able to adjust their daily routines to their changed life circumstances
and do not report feelings that are much different from those of the employed people.
1 See, for example, Clark and Oswald (1994), Winkelmann and Winkelmann (1998), Di Tella et al. (2001), Clark
(2003), and Blanchflower and Oswald (2004)) for income, Helliwell and Putnam (2005) and Winkelmann (2006)
for social contact, and Deaton (2008) and Bockerman and Ilmakunnas (2009) for health.
2 For evidence on the social norm of employment, see Clark (2003) for Great Britain, Shields et al. (2008) for
Australia, and Clark et al. (2008) for Germany.