“Labor Market Policy and Subjective Well-being during the Great Recession” (under review)

Abstract

Average subjective well-being decreased in Europe during the Great Recession, primarily among people with less than a college education and among all age groups less than retirement age.  The primary aim of this paper is to examine whether different types of labor market policies mitigated or exacerbated the negative impact of the Great Recession on subjective well-being for these vulnerable groups.  The analysis is based on a multi-level regression model using the variation in labor market policy across 23 European countries.  The subjective well-being measure used is self-reported life satisfaction.  The results demonstrate that for all vulnerable groups with the exception of youth, labor market policies had a significant effect on subjective well-being during the Great Recession, but the effect was either mitigating or exacerbating depending on the type of labor market policy.  Unemployment support that provided income replacement or programs to help unemployed workers find jobs mitigated the negative effect of the Great Recession on subjective well-being.  Conversely, stricter employment protection legislation exacerbated the negative effect of the Great Recession.  Suggestive evidence is presented that the exacerbating effect is explained by strict employment protection legislation imposing rigidities on the labor market, making people feel less optimistic about their future job prospects. 

 

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