Is it the loss of income that makes unemployment so bad?

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This paper tests for the importance of nonpecuniary costs of unemployment using a longitudinal data-set on life-satisfaction of working-age men in Germany. The authors show that unemployment has a large detrimental effect on satisfaction after individual specific fixed effects are controlled for. The nonpecuniary effect is much larger than the effect that stems from the associated loss of income.

Source: “Why Are the Unemployed So Unhappy? Evidence from Panel Data” from Economica.

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