Well-being and unemployment during the Great Recession: an empirical analysis across UK local authority districts

This paper examines the relationship between unemployment and psychological well-being before and during the Great Recession across 249 UK local authority districts (LADs). Substantial evidence demonstrates that unemployment has a large negative effect on psychological well-being. However, unique social norms develop in geographical areas with high unemployment rates, which significantly reduce the negative impact of unemployment on well-being. Though the post-2007 Great Recession period was characterized by widespread unemployment, few studies have examined the impact of this crisis on well-being in high- and low-unemployment local areas. The analysis constructs a rich panel data set which follows 15,798 individuals from 1998 to 2014, and applies difference-in-differences fixed-effects and general method of moments estimators. The findings indicate that unemployment had a large negative impact on psychological well-being. However, the magnitude of this effect did not change (or was even slightly lower) during the Great Recession. Furthermore, the unemployment social norm also ceased to have any additional effect on well-being during the Great Recession in high-unemployment LADs, as opposed to the pre-recession period.