Happier People Are Less Likely to Be Unemployed: Evidence from Longitudinal Data in Germany

Abstract

Psychological measures are gaining recognition as important determinants of labor performance. This paper demonstrates that people reporting higher subjective well-being (SWB) are less likely to be unemployed. A one standard deviation increase in lagged SWB is associated with approximately a one percentage point decrease in the probability of being unemployed. The mechanisms include changes in the Big-Five personality traits. Within-person increases in extraversion or emotional stability, for example, are associated with increases in SWB. The results also show that the magnitude of the SWB-unemployed relation is substantially larger for people who are currently unemployed, but also too much SWB can be a bad thing, because the SWB-unemployed relation is quadratic. The results are based on separate dynamic and fixed-effects regressions, and supported by Arellano and Bond, generalized methods of moments, type estimations. The data come from the German Socio-Economic Panel (1984-2013).