Career and life satisfaction: Does it pay to be happy? New research from the GLO network.

Does life satisfaction affect your career? The results of a new study demonstrate it does. The study, published in Kyklos by GLO Fellow Kelsey J. O’Connor, finds more satisfied people are less likely to lose their jobs and if unemployed, more likely to become reemployed within a year. These benefits can be explained in part through noncognitive skills. For instance, more satisfied people are also more optimistic, conscientious, extraverted, and emotionally stable, factors that are, unsurprisingly, useful in the labor force.  

You may have suspected that happy people perform better at work. Indeed, happier people are healthier and earn higher incomes, based on observational and experimental evidence. Happiness also contributes positively to countries’ production. These represent just a few of the findings. For more evidence, see the chapter dedicated to the benefits of happiness in the United Nations World Happiness Report 2013.

O’Connor (2020) differs by demonstrating greater life satisfaction today reduces the likelihood of being unemployed a year from now. The reverse, that unemployment brings unhappiness, is well known, see in particular the study of GLO Fellows Winkelmann and Winkelmann (1998) with over 2000 Google Scholar cites. Analyses are based on the German Socio-Economic Panel and include separate dynamic and fixed-effects regressions, and two instrumental variable approaches. Regressions include a rich set of controls, especially relevant are unemployment history, and perceptions of both job security and reemployment opportunities.

The impact of life satisfaction on unemployment is not negligible. Increasing life satisfaction from approximately a 7 to an 8 on a scale from 0 to 10, reduces the likelihood of unemployment by approximately five percent.

To be precise, the focus of O’Connor (2020) is self-reported life satisfaction, which is distinct but closely related to happiness. See the OECD Guidelines on Measuring Subjective Well-Being for further details. For responses to recent criticisms of subjective well-being measures like happiness and life satisfaction, see Kaiser and Vendrik or Chen et al. (2019).

As suggested, noncognitive skills help to explain how life satisfaction affects unemployment. O’Connor (2020) offers evidence that noncognitive skills and life satisfaction are positively correlated in fixed effects regressions with complete socio-economic controls. A significant portion of life satisfaction is derived from noncognitive skills, and there are now quite a few studies that show noncognitive skills are important for workplace outcomes. In formal economic theory, they represent capabilities that are important for different outcomes, just like physical ability or intelligence. Similarly, in other work authored by O’Connor and GLO Fellow Carol Graham, the authors demonstrate that optimistic people live longer, based on nearly 50 years of longitudinal data. Indeed, they find an optimistic belief structure is more important for life expectancy than income or cognitive ability.

Happiness is important. Philosophers throughout time and around the world have stated it. Yet many policy makers are reluctant to invest explicitly in happiness. The findings of O’Connor (2020) give them another reason. Policies that target noncognitive skills and life satisfaction, in schools for example, should not only improve life satisfaction, but also labor market performance.