Life Satisfaction and Noncognitive Skills: Effects on the Likelihood of Unemployment

Kelsey O'Connor

Kyklos, 2020, vol. 73, issue 4, 568-604

Abstract: Psychological measures are gaining recognition as important determinants of labor performance. This paper demonstrates that people reporting greater subjective well‐being (SWB) are causally less likely to be unemployed in the future. The relation exhibits a meaningful magnitude relative to the mean unemployment rate and other determinants. The analysis is based on a longitudinal survey of German households over the period 1996‐2013 (German Socio‐Economic Panel). Analyses include separate dynamic and fixed‐effects regressions, and two instrumental variable approaches. Together, this sample and set of analyses, makes it possible to assess the relation for previously unstudied groups and to assess different mechanisms. Indeed the relation exhibits considerable heterogeneity. It is quadratic and substantially greater for students and people that are presently unemployed (compared to their counterparts). Fixed effects regressions indicate that SWB affects future unemployment in part through within‐person changes in the Big‐Five personality traits (e.g., conscientiousness or emotional stability) but not cognitive ability. The results imply SWB may be used as a proxy for alternative psychological predictors of performance, which is important because SWB is more broadly available than many alternatives (e.g., the Big Five). What is more, policy makers have additional reasons to promote SWB.

Date: 2020
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