Subjective Well-Being and the Welfare State: Giving a Fish or Teaching to Fish?

Abstract

To what extent can social policies influence how individuals experience spells of unemployment? Conventional hypotheses posit that more generous unemployment insurance schemes might increase the subjective well-being of the unemployed, but the empirical literature fails to convincingly confirm (or reject) this proposition. This paper contends that a theoretical preoccupation with the overall generosity of social policies obscures more than it reveals about the mechanisms through which the state can shape how individuals experience spells of unemployment. Social support regimes for the unemployed typically include some combination of active and passive labor market measures. Passive measures provide recipients with various forms of income support during unemployment spells, while active measures help individuals find new and better jobs by improving their overall employability. Several factors—the decreasing marginal utility of income, hedonic adaptation to material conditions, and the substantial non-pecuniary costs associated with unemployment—suggest that investments in active labor market measures will yield relatively greater gains in subjective well-being among the unemployed. These intuitions are confirmed in an analysis of data from three rounds of the European Social Survey (2002–2007) using a combination of fixed-effects and random-effects modeling techniques. While the overall generosity of public expenditures on labor market policy exerts no significant effect on the life satisfaction of the unemployed, the analysis supports the notion that active labor market measures are more effective in promoting life satisfaction among the unemployed than passive measures.