Martina Grunow
Reference-Dependent Effects of
Unemployment on Mental Well-Being
Abstract:
Several contributions to the literature have shown that the perception
of the individual employment status depends on the surrounding
unemployment rate. We argue that expectations are a possible link
between unemployment rates and the individual employment status
regarding changes in mental well-being. Theoretical foundation comes
from models for reference-dependent preferences with endogenous
reference points. We provide a simple theoretical model to motivate and
structure the empirical analysis. Using data from the German
Socio-Economic Panel, we estimate a pairwise interacted model for
employment status and expectations over two time periods. Life
satisfaction is used as a proxy for mental well-being. To identify a
causal effect of unemployment, expectations and their interactions on
mental well-being, the analysis relies on fixed effects and exogenous
entries into unemployment due to plant closures. We confirm the
standard result that unemployment has a negative effect on mental
well-being. Furthermore, the results deliver empirical evidence for
reference-dependent effects of unemployment on mental well-being. We
find that becoming unemployed unexpectedly is more severe as if the
unemployment was expected. Therefore, this paper contributes to the
understanding of how mental well-being is affected by unemployment and
delivers empirical support for the theoretical models of
reference-dependent preference wit endogenous reference points
determined by expectations.
JEL: C23, D03, D84, I10, I18, J01, J60
Paper:
Paper available as pdf-file.
Beitrag Nr. 323, Volkswirtschaftliche Diskussionsreihe, Institut
für
Volkswirtschaftslehre der Universität Augsburg
Contact:
Martina
Grunow, University of Augsburg, Department of Economics,
D-86135
Augsburg,
Germany, phone +49-821-598-4210, fax +49-821-598-4232
email: martina.grunow@wiwi.uni-augsburg.de
Bo., 24.02.2014