Unemployment, economic instability, and their implications for well-being
Unemployment can have adverse effects on the economy and on the well-being and life satisfaction of those who are out of work. But, what factors prolong unemployment? And, which measures help shorten unemployment spells and enable people to find more stable jobs that better match their skills and qualifications?
While many countries have some form of unemployment insurance system, with welfare payments made by governments to people who are out of work, there is considerable variation in how much is paid, for how long, and in what circumstances. As the effects of the Covid-19 pandemic continue to be felt across the globe, how countries choose to manage their growing numbers of unemployed will affect the well-being and financial stability of millions and impact the resilience of their economies in the years ahead.
See also our page on youth unemployment.
Listen to talks on this topic by Alex Bryson and Jan-Emmanuel De Neve from January 23, 2018.
Health effects of job insecurity Updated
Job insecurity adversely affects health, but employability policies and otherwise better job quality can mitigate the effectsFrancis Green, December 2020The fear of unemployment has increased around the world in the wake of Covid-19. Research has shown that job insecurity affects both mental and physical health, though the effects are lower when employees are easily re-employable. The detrimental effects of job insecurity could be partly mitigated if employers improved other aspects of job quality that support better health. But as job insecurity is felt by many more people than just the unemployed, the negative health effects during recessions are multiplied and extend through the majority of the population. This reinforces the need for effective, stabilising macroeconomic policies, most especially at this time of pandemic.MoreLess
Job search monitoring and benefit sanctions generally reduce unemployment duration and boost entry to employment in the short termDuncan McVicar, June 2020Unemployment benefits reduce incentives to search for a job. Policymakers have responded to this behavior by setting minimum job search requirements, by monitoring to check that unemployment benefit recipients are engaged in the appropriate level of job search activity, and by imposing sanctions for infractions. Empirical studies consistently show that job search monitoring and benefit sanctions reduce unemployment duration and increase job entry in the short term. However, there is some evidence that longer-term effects of benefit sanctions may be negative.MoreLess
The number of prime-age males outside the labor force is increasing worldwide, with worrying resultsThe global economy is full of progress paradoxes. Improvements in technology, reducing poverty, and increasing life expectancy coexist with persistent poverty in the poorest countries and increasing inequality and unhappiness in many wealthy ones. A key driver of the latter is the decline in the status and wages of low-skilled labor, with an increasing percentage of prime-aged men (and to a lesser extent women) simply dropping out of the labor force. The trend is starkest in the US, though frustration in this same cohort is also prevalent in Europe, and it is reflected in voting patterns in both contexts.MoreLess
Uncoordinated unemployment insurance and severance pay do a poor job of insuring against losses resulting from job displacementDonald O. Parsons, September 2018Job displacement poses a serious earnings threat to long-tenured workers through unemployment spells and lower re-employment wages. The prevailing method of insuring job displacement losses involves an uncoordinated combination of unemployment insurance and severance pay. Less developed countries often rely exclusively on public mandating of employer severance pay due to the administrative complexity of unemployment insurance systems. If both options are operational, systematic integration of the two is important, although perhaps not possible if severance pay is voluntarily provided.MoreLess
Should statistical criteria for measuring employment and unemployment be re-examined?Measuring employment and unemployment is essential for economic policy. Internationally agreed measures (e.g. headcount employment and unemployment rates based on standard definitions) enhance comparability across time and space, but changes in real labor markets and policy agendas challenge these traditional conventions. Boundaries between different labor market states are blurred, complicating identification. Individual experiences in each state may vary considerably, highlighting the importance of how each employed or unemployed person is weighted in statistical indices.MoreLess
Wage losses upon re-employment can seriously harm long-tenured displaced workers if they are not properly insuredDonald O. Parsons, June 2018Job displacement represents a serious earnings risk to long-tenured workers through lower re-employment wages, and these losses may persist for many years. Moreover, this risk is often poorly insured, although not for a lack of policy interest. To reduce this risk, most countries mandate scheduled wage insurance (severance pay), and it is voluntarily provided in others. Actual-loss wage insurance is uncommon, although perceived difficulties may be overplayed. Both approaches offer the hope of greater consumption smoothing, with actual-loss plans carrying greater promise.MoreLess