Chapter 4people are with all the different possible positions in the
labor force.
In Table 4.1 we compare the life- satisfaction in each
group with that of people with full- time jobs, holding con-
stant only age and gender. The unemployed are less happy
by a staggering 1.5 points, see column (1). By contrast self-
employed people are happier by nearly 0.2 points.^5 How-
ever the effect of unemployment falls to around 1 point
when, in column (2), all the other standard factors (includ-
ing income) are introduced. So unemployment hurts for
many reasons beyond the loss of income.
Similar results are obtained in the panel datasets for
Britain and Germany (see Table 4.2).^6 When all the data
for each country are pooled and subjected to cross- section
analysis, unemployment reduces life- satisfaction by 0.7 of a
point in Britain, 1 whole point in Germany and rather less
in Australia and the United States.
However all cross- section estimates are subject to bias
from omitted personal variables. We can remove this bias by
introducing a fixed personal effect for each individual. The
Table 4.1. How life- satisfaction (0– 10) is affected by labor- force status
(British Cohort Study)Compared with
full- time workers Cross- section Cross- section Panel
Unemployed −1.55 (.13) −1.06 (.15) −0.30 (.15)
Part- time workers −0.01 (.05) 0.05 (.05) 0.09 (.07)
Self- employed 0.19 (.05) 0.25 (.09) 0.34 (.08)
Out of labor force −0.08 (.06) −0.09 (.10) 0.26 (.09)
Controls Age, gender All All + fixed
effect