Happy People Are Less Likely to Be Unemployed: Psychological Evidence From Panel Data

There is a large literature showing that unemployment reduces people's well‐being. Yet little is known about the reverse possibility, namely that well‐being itself may influence unemployment propensity. Understanding the potentials of human well‐being in relation to unemployment is important as many developed countries are currently facing high unemployment rates. As well‐being is likely to be endogenous, we use British panel data and implement Lewbel's novel empirical approach for identification. We show that higher well‐being implies a negative causal effect on the probability of being unemployed. The result holds for two very different well‐being measures: life satisfaction and a 12‐item scale of mental health. As such, it provides new empirical evidence on the causal link between well‐being and unemployment propensity. ( JEL D03, I31)