Neighborhood effects of high unemployment rates: Welfare implications among different social groups

This study analyzes spillover effects of high unemployment rates on well-being using cross-sectional data for Germany. Context effects among the employed arise due to the informational character of high unemployment rates. Using data on job security perceptions as well as regional unemployment rates the paper shows that high unemployment rates cause negative externalities among the employed. In addition, subjective perceptions of job security depend on local labor market conditions indicating the informational value of employment data. For unemployed persons we cannot find any welfare gains owing to a social norm effect. Thus, the existence of a public bad is not more enjoyable the more people suffer from the public bad.

► Subjective job insecurity perceptions as well as high regional unemployment rates induce negative externalities among the employed.
► For unemployed persons we cannot find any welfare gains owing to a social norm effect.
► Subjective job insecurity perceptions depend on regional unemployment rates and individual job characteristics.