Work involvement in the valuation of unemployment

Abstract

In this study the relationship between happiness and unemployment is investigated. Unemployment decreases significantly the happiness of individuals. One of the psychological factors that

affects unemployment is work involvement. Work involvement can be defined as a measure for how important work in general is for the happiness of individuals. According to the theory of

mental incongruence individuals with a high work involvement suffer more from unemployment than individuals with a low work involvement. Since recently, economists have tried to attach a monetary value to unemployment by means of happiness surveys. The question which is tried to be answered by this method is how money much

should be given to unemployed individuals to make them equally happy as if they were employed. By means of data from the German Socio-Economic Panel income compensations are calculated for

low and high work involved individuals. To offset the decrease in happiness due to unemployment the monthly income compensation is € 7.021 for low work involved individuals and € 16.896 for

high work involved individuals. From a theoretical point of view, high work involved unemployed persons should receive more active labour market policies, because the psychological costs of

unemployment are higher for them. Also it can be concluded that the calculations in this paper suggest that current public expenditures for labour market policies, especially the

expenditures for active labour market policies, are too low to compensate individuals for their loss in happiness due to unemployment.