Income or leisure? On the hidden benefits of (un)employment

Abstract

Do unemployed people benefit from more free time, while consumption is the sole motive for employed people to accept a life with less available time? Does this apply equally to men and women? To inform ongoing policy debates on how to address the problem of unemployment, we provide a comprehensive discussion of the traditionally assumed trade-off between income and leisure in labor supply decisions, which has been contested for a variety of reasons. Using rich German panel data, we compare non-employed individuals after plant closures with employed individuals regarding their subjective well-being obtained from time use and income. We find that increased non-working time through unemployment translates into higher free-time satisfaction, while also improving satisfaction with family life, as a possible hidden benefit of being unemployed when having more time for home production. Meanwhile, there is a strong decline in satisfaction with household income, especially among unemployed men, which cannot be explained solely by a lower level of income. We inspect the role of social norms in this context and argue that individuals obtain identity utility through having a job that ensures being self-sufficient, as a hidden benefit of employment. Based on studying unemployed workers transitions into retirement and a separately conducted survey experiment, we provide strong evidence on the importance of the social norm of earning a living from work. Our experiment also shows that home production is a way of mitigating the pressure to comply with this norm, which is true for men and women alike.

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