Psychologists Erikson (1959), Jahoda (1979, 1981, 1982) and Warr (1987) have offered theories to explain how experiences such as joblessness may lead to a decline in mental health. Other psychologists, including Rotter (1966) and Rosenberg (1965), have designed and validated survey instruments capable of measuring various aspects of emotional health including self-esteem. Using such construct measures the correlation between unemployment and self-esteem has been estimated. Unfortunately, the accuracy of these estimates is marred by three statistical problems: omitted variables, unobserved heterogeneity, and data selection. Therefore, the failure of a consensus to emerge regarding the impact of unemployment on self-esteem is not surprising.
This paper offers new estimates of the relation between unemployment and self-esteem using a methodology that controls for the three potential sources of bias identified. The data are drawn from the U.S. National Longitudinal Survey of Youth which provides detailed information on the personal characteristics of individuals in the sample, including their self-esteem, as well as their labor force experiences.
We find clear evidence that having recently completed a spell of joblessness, due either to unemployment or time spent out of the labor force, damages an individual’s perception of self-worth. Exposure to bouts of both forms of joblessness also significantly harms self-esteem, and the effect of such exposure persists. Our decompositional analysis suggests that joblessness damages self-esteem by generating feelings of depression. Clearly, policies designed to lessen joblessness will also yield a psychologically healthier labor force.
Goldsmith, A. H., Veum, J. R., &William Jr, D. (1996). The impact of labor force history on self-esteem and its component parts, anxiety, alienation and depression. Journal of Economic Psychology, 17(2), 183-220.