Life satisfaction effects of unemployment in Europe: The moderating influence of labour market policy

Abstract

Public policy shapes the lives of individuals, and even more so if they depend on state support. In the case of unemployment, the financial situation is largely determined by cash transfers and daily routines depend on the involvement in active labour market policy measures. To what extent, however, can subjective well-being differences of European unemployed be traced back to the national design and generosity of labour market policy? This article applies multilevel and panel estimation techniques to identify the moderating effect of unemployment benefit generosity and active labour market policy on life satisfaction of the unemployed. While unemployment has strong negative life satisfaction effects in all 21 European countries under study, the generosity of passive labour market policy moderates this effect to a surprisingly large extent: the adverse effect of unemployment is almost doubled if unemployment benefits are meagre. This moderating effect can be explained both by a resource as well as a non-pecuniary mechanism. The positive moderating effect of active labour market policy is less robust across model specifications.