Psychology / The Toll and Fallout of High Unemployment

The job market continued to improve last year, but the pace of improvement was agonizingly slow. The unemployment rate edged down to 7.8%, a drop of 0.7% compared with the end of the previous year. Payroll employment grew 153,000 a month. Payroll gains in 2010, 2011, and 2012 have now offset a little more than half the loss in payroll jobs we suffered in 2008 and 2009. The net improvement is less than these numbers suggest, because we need employment to increase about 90,000 every month in order to accommodate the growth of the working-age population.

Two features of the recovery have inflicted harsh burdens on the nation’s unemployed. First, an exceptionally high proportion of unemployment has been long-term, that is, has lasted six months or longer. Second, since reaching a peak of 10% in October 2009, unemployment has fallen at a glacially slow pace.

Unemployment and the burden it imposes are very unequally distributed across the population. Young workers, employees in cyclically sensitive industries like construction and manufacturing, and members of historically disadvantaged minorities are more likely to suffer layoffs than other workers. The labor income of most unemployed workers falls to zero, and only part of it is replaced by unemployment compensation and other social benefits. Workers who lose their jobs after short spells of employment or who become unemployed after leaving school or rejoining the labor force seldom qualify for any unemployment benefits at all.

The psychological toll of unemployment—and of long-term unemployment in particular—is known to be high. Surveys in many industrialized countries show that being unemployed reduces happiness. This finding is hardly surprising. What is more interesting is that the drop in happiness that accompanies unemployment is greater than the change in happiness that can be explained by the drop in income that accompanies job loss. It is widely known that, in a cross-section of people in the same country, differences in income help account for differences in individual happiness. Not surprisingly, people with higher income tend to be happier than people who have less income. Even accounting for the effects of income differences, however, people who describe themselves as unemployed are considerably less happy than the employed.

The gap in happiness between the unemployed and employed cannot be explained by differences in happiness that existed before job loss occurs. A number of longitudinal studies demonstrate that a sizeable drop in happiness accompanies or follows the involuntary loss of a job.

Choosen excerpts by Job Market Monitor from

via The Psychological Toll and Economic Fallout of High Unemployment | Brookings Institution.