The Effect of Subsidized Employment on Happiness: Evidence from Germany

Benjamin Crost
University of California, Berkeley, USA

While a large body of evidence suggests that unemployment and self-reported happiness are negatively correlated, it is not clear whether this reflects a causal effect of unemployment on happiness and whether subsidized employment can increase the happiness of the unemployed. To close this gap, I estimate the causal effect of a type of subsidized employment projects - Germany's Arbeitsbeschaffungsmassnahmen - on self-reported happiness. Results from a nearest-neighbor matching estimator suggest that subsidized employment has a large and statistically significant positive effect on the happiness of individuals who would otherwise have been unemployed. Detailed panel data on pre- and post-project outcomes suggests that the effect is not due to self-selection of happier individuals into the projects and cannot be explained by increases in household income.

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