This paper has examined the linkage between the general unemployment level and life
satisfaction, placing the emphasis on the duration of unemployment. Our main finding is that
the social costs of unemployment, in terms of general unemployment’s impact on life
satisfaction, relate significantly and to a considerable extent to unemployment duration. It is
thus not just the risk of becoming unemployed that people worry about, but especially the risk
of staying long-term unemployed. This is consistent with earlier evidence that people’s
happiness does not adapt to the status of being unemployed.
Observing that any given level of the annual unemployment rate can arise from (i) a large
number of persons unemployed for a short period or (ii) a smaller number of persons
unemployed for a longer period, our results suggest that society dislikes (ii) more than (i).
Given the same level of general joblessness, reducing long-term unemployment thus seems to
be more important than reducing the number of people unemployed at any point in time. This
can be viewed as a strong point in favor of increased labor market flexibility.