Morrissey was right. When he sang 'I was looking for a job and then I found a job and heaven knows I'm miserable now', he was getting at an important point.
In a new paper, Wolfgang Maennig and Markus Wilhelm show that the link between unemployment and well-being is asymmetric. Although people who lose their jobs tend to become much less happy, the unemployed who find work see a much smaller rise in happiness. Depending on controls, losing your job has an impact upon happiness that five-to-ten times greater than the impact of finding a job.
This suggests that unemployment might have a long-term scarring effect upon well-being. Getting a job does not return one's well-being to its pre-unemployed state.
This is not because the new job often pays less well than the old one, as people lose job-specific human capital; the findings control for changes in income.
Nor is it because people get used to unemployment and so learn to appreciate the leisure which they lose on finding a job. This research shows that people who stay unemployed actually become unhappier, corroborating other research showing that people don't adapt to being jobless.
Now, this research is not the final word. Taken on its own, it implies that someone who suffers several periods of job loss and job finding would eventually see their wellbeing fall to zero, which doesn't happen. So something else is going on.
I suspect this something is that becoming unemployed damages our self-image. It tells us that we are not in control of our own destiny, and some people - enough to affect average happiness - take this badly. This shock is not full reversed by getting a new job. If I'm right, we wouldn't expect repeated cycles of job loss and job finding to continually grind unemployment down, as it's the first spell of joblessness that does most damage.
Whatever. This hints at an important point. There's a trade-off between a flexible labour market, in which there are high rates of job loss and creation, and personal well-being. You can't have both.
This is a big problem, because economic growth probably requires (pdf) significant rates of job turnover.