A Pecuniary Explanation for the Heterogeneous Effects of Unemployment on Happiness

Why unemployment has heterogeneous effects on subjective well-being remains a hot topic. Using German Socio-Economic Panel (GSOEP) data, this paper finds significant heterogeneity using different material deprivation measures. Unemployed individuals who do not suffer from material deprivation may not experience a life satisfaction decrease and may even experience a life satisfaction increase. Policy implications for taxation and unemployment insurance are discussed