Chapter 4each previous year of unemployment is reducing cur -
rent life- satisfaction by about 0.1 point. Thus unemploy-
ment causes pain not only at the time but also to a lesser
extent over the years that follow, even after the person is
back in work.^12
Local Unemployment
When jobs are scarce, this makes some people unemployed;
but it also creates fear and uncertainty for many more
people, even if they currently have work. In consequence,
when unemployment rises in a region, this reduces the life-
satisfaction of the employed population in the region. Table
4.4 shows this effect in the first row of the table.^13 It im-
plies that in Britain a 10% local unemployment rate reduces
the life- satisfaction of the employed population by 0.14
points— and rather more in Germany and less in Australia.
At the same time, for those who are unemployed, a high
unemployment rate reduces their sense of shame at being
unemployed, and it also expands the social group with
whom they can interact.^14 Does this help? We investigate
this issue in the second row of the table, and the answer is
Yes, it helps but not by much. For example, in Britain, using
the bottom two rows of the table we find the following. If
the local unemployment rate is 10%, unemployed people
suffer in total a loss of 0.69 points (i.e., 0.73−0.038), while
when the unemployment rate is zero they suffer by 0.73
points. This is not much comfort, and even though the esti-
mated interaction effect is bigger in Germany and Australia,
we conclude that social comparisons are not a big issue for
the effects of unemployment.