Country-specific life satisfaction effects of unemployment: Does labour market policy matter?

Public policy shapes the lives of individuals, and even more so if they depend on state support. But to what extent can well-being differences between individuals living in different European states be traced back to the specific national public policy designs? This paper tests the intervening effects of the design and generosity of labour market policy on the life satisfaction of the unemployed. To estimate cross-level interaction effects in random intercept models, macro-indicators on active labour market policy spending and unemployment benefit generosity of 21 European countries are merged with survey data from the European Social Survey (ESS). While unemployment has strong negative life satisfaction effects all over Europe, the generosity of passive labour market policy moderates this effect to a surprisingly large extent: The adverse effect of unemployment is almost doubled in a country with meagre unemployment benefits. This moderating effect can be explained both by a resource as well as a non-pecuniary mechanism. In contrast, the moderating effect of active labour market policy is less robust across model specifications.