A new GLO Discussion Paper suggests that labor market policies affected wellbeing during the Great Recession in Europe. While generous unemployment support mitigated the negative effects for most of the population, stricter employment protection legislation exacerbated the negative effects.
GLO Discussion Paper No. 372, 2019
Labor market policy and subjective well-being during the Great Recession – Download PDF
by Morgan, Robson & O’Connor, Kelsey J.
GLO Fellow Kelsey O’Connor
Author Abstract: Average subjective well-being decreased in Europe during the Great Recession, primarily among people with less than a college education and people younger than retirement age. However, some countries fared better than others depending on their labor market policies. More generous unemployment support, which provided income replacement or programs to assist unemployed workers find jobs, mitigated the negative effects for most of the population, although not youth. In contrast, stricter employment protection legislation exacerbated the negative effects. We present further evidence that suggests the exacerbating effects of employment protection legislation are due to greater rigidities in the labor market, which in turn affect perceived future job prospects. Our analysis is based on two-stage least squares regressions using individual subjective wellbeing data obtained from Eurobarometer surveys and variation in labor market policy across 23 European countries.
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