Regional borders, local unemployment, and life satisfaction

Abstract

In this paper, we provide novel evidence on the effect of local unemployment rate on life satisfaction. With this, we contribute to the expanding literature that aims to understand the role of the local labor market's conditions for individual well-being. This information can be used to only analyze the impact of regional economic policies, as well as to understand individuals' behavior and reactions to policy changes. In concrete, we investigate how changes in local unemployment rate affect subjective well-being in Germany, allowing for the presence of spatial spillovers and considering the role played by regional borders. The results indicate that higher unemployment in the own local area of residence has a negative effect on satisfaction. Similarly, individuals' happiness negatively correlates with the unemployment rate in contiguous local areas, but only if these areas are located in the same Federal State as the one where the individual lives. Heterogeneity analysis reveals that these negative effects of local unemployment rate are larger for individuals with stronger ties to the job market and less secure jobs.