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According to the evidence provided by recent empirical studies, unemployed people are, in general, unhappier than employed ones. This evidence, however, concerns only the concept of overall life satisfaction but does not take into account experienced happiness (or experienced utility), which usually implies happiness the day before the survey and consists of satisfaction from different activities (e.g. hobbies, eating, shopping, working etc.). Experienced happiness, though, is more suitable approach, since it gives insight into what makes people happy when they are employed and what makes them unhappy when they are unemployed. Moreover it is more closely related to the idea of utility of work and leisure which the economic theory is based on. The mentioned approach is used in the study of Andreas Knabe (Knabe et al. 2010) conducted in Germany by interviewing 600 employed and unemployed people. Although its results support an idea that unemployed people are in general less satisfied with their lives than employed people, working, among all activities, is perceived by employed people as the least enjoyable activity, while it takes the most of their day time. On the contrary, unemployed people can spend more of their time on leisure activities, which are ranked as more enjoyable by both employed and unemployed people. That is why, when controlling for time-composition effect (how the day time is spent) it appears that unemployed people experience slightly bigger utility than employed people. This, in fact, supports the main assumption behind standard utility functions, namely, that experienced utility is increasing in leisure.

Sources: World Happiness Report 2013, April 2014World Development Indicators (WDI), April 2014Unemployment and happiness: A new take on an old problem