Distress During Unemployment: The Role of Unemployment Insurance

Abstract

Models of utility maximization posit that individuals with more income are able to purchase goods and services so as to attain higher levels of utility. Existing literature has conceptualized measures of psychological well-being as related to individual utility. Recognizing that unemployment has been shown to negatively impact well-being, I examine the role that unemployment insurance during unemployment plays in determining an individual's self-reported levels of nonspecific psychological distress. I test whether transitions into and out of unemployment affect symptoms of distress and whether financial support available through unemployment insurance is associated with reduced distress. I hypothesize that unemployment insurance provides individuals and families with larger budget constraints, allowing for higher utility maximization and reduced distress. In my model, becoming unemployed significantly increases the likelihood that an individual will experience an increase in psychological distress, and transitions into employment from unemployment are associated with a significant reduction in psychological distress. However, I find little evidence in support of the hypothesis that receipt of unemployment insurance significantly moderates that impact of unemployment.