Labour market regulation and subjective well‐being in low‐income countries

Abstract

AbstractA growing literature suggests social democratic policies, as exemplified by the welfare state and active labour market policies, promote higher levels of life satisfaction compared to the neoliberal agenda of austerity, smaller government and more ‘flexible’ labour markets. In this article, this inquiry is extended to low‐income countries. A theoretical argument is developed for why labour market regulation (LMR) (rather than social welfare spending or the general size of government) is a more appropriate locus of attention outside of the industrial democracies. The relationship between LMR and several measures of well‐being is then empirically evaluated, finding robust evidence that people live more satisfying lives in countries that more stringently regulate their labour market. Moreover, it is found that positive benefits of LMR on well‐being are the largest among individuals with lower incomes. The implications for public policy and the study of human well‐being are discussed.