Understanding how becoming unemployed affects people’s preferences and values is important. According to the International Labor Organization, almost two-hundred million people were unemployed worldwide in 2015, over seventy millions of which were youth aged 15-24, an estimated 12.9 percent of the global youth population. The economic consequences of youth unemployment are severe and, in addition to the monetary costs, unemployment is associated with poor psychological and physical health.

The negative effects of unemployment on people’s economic circumstances and mental health are well documented. However, we are only starting to obtain robust empirical results on the moral consequences of unemployment, i.e., about whether and how it affects people’s values. In Barr, Miller and Ubeda (2016), we test the conjecture that becoming unemployed erodes the extent to which a young person acknowledges earned entitlement, i.e., acknowledges an individual’s right to keep, consume, or dispose of that which was gained through his or her own effort or endeavor.

We use behavioral experiments similar to those reported in Barr, Burns, Miller and Shaw (2015) and incorporate them into a novel two-stage study. We invite young people to participate in the experiments twice within a year period and record their employment status and other relevant individual characteristics. We then investigate whether losing a job or leaving full-time education and becoming unemployed cause individuals to acknowledge earned entitlement less. We conducted the study in Spain, the country with the third highest unemployment rate in the OECD. We focused on two cities, Bilbao and Cordoba, where the unemployment rates were high (about 15 percent) and extremely high (above 30 percent) respectively.

In our experiments, participants were asked to play a game. They were provided with some play currency and told to make a decision regarding distributing the currency among themselves and three other people who were playing with them. The final wealth distribution would be picked at random among the four players’ suggestions. The initial amount of currency provided to players was set in one of two ways: it was either randomly assigned, or it was determined by the players’ performance on a task they completed before the game. This latter condition was intended to make participants feel entitled to money they had earned. The same setup was used a year later in the second experiment.

In general, during the first round of the experiment, employed participants tended to redistribute money more evenly when the initial allocation was due to chance; when this allocation was due to performance on the pre-game task, the final redistribution was proportional to the initial endowment. People whose employment status did not change between experiments did not significantly change their behavior. By contrast, people who became unemployed between experiments changed their behavior considerably. Regardless of whether the money was randomly assigned or “earned,” people who became unemployed tended to redistribute the money equally among all players.

We interpret our result as young people rewarding effort and productivity less after becoming unemployed. However, we did not randomize becoming unemployed for obvious reasons. In this sense, we need to consider the possibility that becoming unemployed and rewarding effort and productivity less are both driven by a change in a third variable. A decline in health could cause job loss and a shift toward egalitarian notions of distributive justice. So too could any other experience that causes an individual to become more fatalistic or lazy. Our main finding is robust to the inclusion in the analysis of an index measure for health, a standard measure of personality and a proxy for productivity.

Finally, people’s distributive preferences might be also shaped by ideological dispositions. In Demel, Barr, Miller and Ubeda (2016), we study the effect of employment status and political ideology on preferences for redistribution. We find that, being employed or unemployed affects experimentally revealed redistributive preferences, while the political ideology of the employed and unemployed does not. In contrast, the revealed redistributive preferences of students are strongly related to their political ideologies. In line with our previous research, we conclude that, when people are not exposed to the sometimes harsh realities of the labor market, their redistributive preferences depend on their political ideology but, when they are exposed, the effect of those realities overrules their ideology.

The extent to which individuals believe that earned entitlement should be acknowledged has potential implications for the way they vote, how willing they are to pay their taxes, and whether and how they engage in the process of production. However, further research is needed. Specially, we would like to understand better the policy implications of our behavioral results. Currently, we are focusing on whether unemployed individuals have to reacquire the value of earned entitlement before effectively reengaging with the labor market, as well as, the effect of specific public policies on both moral values and labor market outcomes.

References:

Barr A., J. Burns, L. Miller and I. Shaw 2015. “Economic status and acknowledgement of earned entitlement”, Journal of Economic Behavior and Organization, 118: 55-68.

Barr A., L. Miller and P. Ubeda 2016. “Moral Consequences of Becoming Unemployed”, Proceedings of the National Academy of Sciences, 113, No. 17: 4676-4681.

Demel S., A. Barr, L. Miller and P. Ubeda 2016. “Labor market participation, political ideology and distributive preferences”, CeDEx Discussion Paper Series No. 2016-18.