The economic and welfare state determinants of well-being in Europe

This paper analyses the effects of unemployment and social provision on population well-being in ten European countries. We argue that the nature of the linkages between well-being and unemployment rate is non-linear, by identifying the presence of a threshold in unemployment by means of the Hansen test (1999, 2000). Happiness was found to be negatively affected by the unemployment rate both in the presence of linearity in unemployment and under the two regimes determined by the identified threshold. Our results show that social provision, as a whole, and health-care benefits in particular negatively affect happiness while spending on unemployment protection and active labour policies have a positive impact on the well-being suggesting a different allocation of social resources. Furthermore, these non-linear linkages would help the policy-makers to take into account different groups when making decisions about the allocation of social resources.