Increasing unemployment damages happiness and well-being, even for those who still have jobs, a new study has found.
The researchers found that when local unemployment goes up by one percentage point, the effect on the well-being of those who are still working is about the same as a four per cent decline in household income.
Using an analysis of U.S. surveys, CIFAR Senior Fellow John Helliwell (University of British Columbia) and former CIFAR-funded University of Alberta economist Haifang Huang found changes to local unemployment rates shake employees’ sense of security, causing their overall life satisfaction to drop.
Helliwell and Huang found that when local unemployment goes up by one percentage point, the effect on the well-being of those who are still working is about the same as a four per cent decline in household income.
“Our evidence increases the weight of evidence showing how central it is for people to have worthwhile employment, and to feel secure in that employment,” says Helliwell. The paper, part of a series on well-being, was recently published in the journal Economic Inquiry. The research originated in CIFAR’s Social Interactions, Identity & Well-Being program, which Helliwell co-directs.
“For those still employed, and who have not yet suffered any income losses, the well-being effects probably reflect some combination of concern about future job loss as well as concern for others more directly affected,” Helliwell says.
The smaller the town, city or region where unemployment is measured, the greater the effect on the people who live there, the study found. The research shows how, in the same way that gossip spreads through local circles, economic circumstances creep into our daily lives and help to shape our sense of life satisfaction, through conversation with neighbours and colleagues as well as media reports.
In addition, the researchers found that changes to unemployment levels are harder on well-being than the unemployment rate itself. They suggest that a gradual increase to the unemployment rate gives employees a chance to adjust, while abrupt jumps in unemployment could make workers feel helpless and anxious.
These emotions are even stronger when there is turmoil at the workplace. Survey respondents at companies that are downsizing rate their emotions as worse than those of people who are unemployed, even though their overall well-being is still better.
“Downsizing is usually not a happy process,” Helliwell says.
The authors also looked how unemployment affects the unemployed, and found that while the drop in income reduces their well-being, the total impact of unemployment on life-satisfaction is several times as large as the effect of a lower income alone.
The results suggest that work plays a central role in our sense of purpose and happiness — one that goes beyond having more or less money. The authors say that employment’s effects on life satisfaction have important economic and societal consequences. “Public and private policymakers are gradually coming to realize the importance of the workplace to life satisfaction, and to investigate ways of building happier workplaces,” Helliwell says.
A better understanding of how to mitigate the impact of rising unemployment on well-being could help to build more productive and innovative workplaces, he says. “But better lives are the basic bottom line.”