Unemployment Rate

Employed People Prefer to Keep the Money They Earn, Says New Study

Does unemployment teach people that the rewards of life are largely due to luck?


Dreamstime: Iqoncept

A startling new study* just published in the Proceedings of the National Academy of Sciences probes "the moral consequences of becoming unemployed." The researchers led by University of Nottingham social scientist Abigail Barr use economic games to see how the views of 151 young European adults regarding how money should be distributed change depending on how their employment status changes. In the first year, 85 participants were employed and 66 were full time students. In the second year, 59 participants were still employed, 26 unemployed, 51 full time students, and 15 former students were unemployed.

The participants play an anonymous four player distributive justice (DJ) game in which the researchers endow each with different sums of money—€16, €12, €10, and €6—and each player knows how much the others got. Before the DJ game, some participants had engaged in real effort task that determined the size of of their monetary endowments—the more successful received €16 and the less €6.

Once the play was over, each participant was given a tray divided into four sections. One section belongs to him or her and the other three sections belong to fellow participants. In two-thirds of the cases how the money is divided up in the trays is related to how much work each participant did and in the remaining cases the amounts are allocated more or less randomly. Each participant can decide how to divvy up the money between himself or herself and the other three players. Once all of the participants have made their allocation decisions, the decisions of one, randomly selected, determine the final payoffs.

The goal of the experiment was to see how the employment status of participants who affect how they would choose to divvy up the funds. So what did they find? Phys.org reports:

"We found that the employed people tended to re-distribute the money less when they knew people had earned their money in the first part," asserted researcher Luis Miller from the School of Economics and Business at the University of the Basque Country. "By contrast, they tended to re-distribute it almost equally when they knew that the initial distributions were just due to luck."

In other words, the researchers found that people who are employed or full time students want to keep what they earn but tend to share what comes by luck. But what happens when they become unemployed? Phys.org more broadly notes:

In general, both people in employment and those in full-time education believe that people should be allowed to keep most of what they earn and that it is OK for those who work harder or who are more productive to earn more". Miller went on to say, "When people become unemployed, our study indicates that they let go of this belief. They put a higher value on the redistribution of money, which, in social terms, would mean higher taxes on those earning more in order to fund increased public spending."

"In our study," explained Miller's colleague Paloma Úbeda, "we didn't ask the participants about re-distribution, taxes or public spending, as the responses to questions of this type could be biased by the self-interest of the interviewees. So high earners who look after their own interests would prefer lower taxes, while low earners who also have their own interests in mind would want higher taxes. What we were really interested in was understanding how, when becoming unemployed, people change the way they see what is fair in terms of re-distribution, in other words, whether they change their moral values. We found that they do; when becoming unemployed people change the way they think about fairness and re-distribution."

In their PNAS study, the researchers observe:

The finding that becoming unemployed erodes individual acknowledgment of earned entitlement can be explained with reference to dissonance reduction. On becoming unemployed, individuals who previously adhered to the value of earned entitlement let go of that value instead of either: enduring a decline in material well-being; or receiving resources to which they do not feel entitled and enduring the psychological effects of the resulting dissonance. In turn, the finding may help to explain why, especially following the financial crisis of 2008, young people are disengaging from the labor market; on becoming unemployed, individuals let go of the value of earned entitlement and, thereby, let go of one of the motivations for finding a new job.

The researchers suggest that …

…we need to establish whether unemployed individuals have to reacquire the value of earned entitlement before effectively reengaging with the labor market. Then, assuming they do, we need to investigate how this process occurs and whether and how different interventions enable the process.

Does unemployment teach folks to become fatalists who believe that the rewards of life are largely due to luck? And then vote to redistribute those rewards from the lucky to the unlucky?


Hat tip: Mark Sletten.