Wellbeing at work and the Great Recession: The effect of others’ unemployment

Abstract

Economists have long been interested in the possibility that individuals’ wellbeing depends on their relative position. The recent recession has generated a tremendous increase in unemployment rates in Spain. In this paper we use a very rich repeated cross-section dataset on workers’ job conditions, together with regional unemployment information, to investigate whether peers’ unemployment affects individuals’ job satisfaction. We try to distinguish both the negative effect that others’unemployment might inflict on individual on-the-job wellbeing via increased job insecurity and the positive effect, sometimes called social norm of unemployment, whereby individuals’ wellbeing increases when they feel relatively better than their peers. We find that peers’ unemployment shows both a negative and a positive effect in Spain. In fact, once perceived job insecurity is controlled for, a clear positive effect emerges, larger and more precisely estimated for men and private-sector workers. This result is robust to using different unemployment rate measures and, interestingly, to controlling for workforce selection. Our findings constitute a microeconometric foundation of the countercyclical pattern of productivity in Spain.