Fear of Unemployment by David Blanchflower

Professor David Graham Blanchflower, CBE, is a British-American labour economist at Dartmouth College, Hanover, New Hampshire.

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Unemployment is notoriously difficult to predict. In previous studies, once country and year fixed effects are added to panel estimates, few variables predict changes in unemployment rates. Using panel data for 29 European countries collected by the European Commission over 444 months between January 1985 and December 2021 in an unbalanced country*month panel of just over 10000 observations, we predict changes in the unemployment rate 12 months ahead. We do so using individuals’ fears of unemployment, their perceptions of the economic situation and their own household's financial situation. Fear of unemployment predicts subsequent changes in unemployment 12 months later in the presence of country fixed effects and lagged unemployment. Business sentiment (industry fear of unemployment) is also predictive of unemployment 12 months later. The findings underscore the importance of the “economics of walking about”. Using country-level panel data for 29 counties between 1985-2020 we also show that consumers’ fear of unemployment lowers life satisfaction over and above the negative impact of the unemployment rate itself.