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Goldsmith’s Research Warns of Psychological Effects of Unemployment

As the current economic crisis and pending recession lead to rising unemployment, research by Arthur H. Goldsmith, the Jackson T. Stephens Professor of Economics at Washington and Lee University, warns of the devastating, and possibly permanent, psychological effects of joblessness.

Goldsmith’s innovative research into the psychological effects of joblessness contributed at an early stage to the now popular field of Behavioral Economics. He says that he and his colleagues Jonathan Veum, a Research Economics with FreddicMac, and William Darity Jr., Professor of Economics and Public Policy at Duke University, wanted a richer understanding of what it fully means to be unemployed. “At the time of our research, economists were asserting that the consequence of exposure to unemployment was simply lost wages and output,” says Goldsmith, “yet anyone could see that there was a non-monetary effect that was much more personalized.”

“In the first phase of unemployment, people have a benign ignorance and think it will turn out fine, that they are not going to be emotionally damaged by this, because they’ll just go out and get a job,” says Goldsmith.

Approximately half of unemployed people do find a job in about five weeks, but he stresses that, “even by five weeks you can see the changes. They begin to question themselves: ‘Why was I selected to be unemployed?’ ‘Were my skills lacking?’ ‘Is there something about me that’s problematic?’ And so begins the erosion of self esteem, which is such a very important part of our psychological well being.”

In addition to a diminished sense of self, those exposed to a few months of unemployment begin to exhibit higher levels of anxiety, depression, and lack of sleep. If people face prolonged unemployed, six to nine months or longer, the psychological effects often become chronic and have a long lasting effect.

Goldsmith’s research identified two different types of individuals: Those with an internal locus, who feel that they influence the things that happen to them, and those with an external locus, who believe that they don’t have much control over their lives and that events just happen to them. An important distinction between people with these differencing mind-sets is that person’s with a more internal locus tend to be more motivated, since they see a tight connection between actions they take and life outcomes.

Goldsmith says that as time marches on for the unemployed, all people, no matter what their original outlook, will become more externally focused. “Looking at longer periods of unemployment, say four to six months, we see statistically significant evidence of people becoming more externally focused and feeling helpless,” he says.

“What’s really interesting is that this compromised sense of self becomes hardens and is better described as a permanent scar rather than a blemish. Even when people become employed again, the adverse impact of unemployment on psychological well-being lingers.”

Goldsmith contends that whether a person is internally or externally focused prior to exposure to unemployment governs the extent to which joblessness leaves them feeling helpless and compromises their self-esteem. “Having an external locus can act as a coping mechanism or a way of avoiding self-blame which protects one’s sense of emotional well-being,” he says.

Consequently, according to Goldsmith, more highly educated people are the most vulnerable to the psychological ravages of unemployment because they tend to be more internally focused. “So when these people become unemployed they tend to attribute this to personal shortcomings which fosters helplessness and a compromised view of self.”

Another group that experiences the psychological impact of unemployment are those who are personally connected to an individual who becomes unemployed. First, there’s empathy with the individual who lost a job, but then there’s a lot of concern that maybe they are next. This, Goldsmith says, can create considerable anxiety. The interesting question is how do these people respond?

Those with an internal outlook will try to protect themselves by demonstrating to their employer that they are a model employee–psychologists call such behavior reactance. “They will say ‘I’m going to be such a fantastic worker they’ll never lay me off. I’ll be indispensable.’ When these people eventually lose their jobs,” says Goldsmith, “you can only imagine the deep psychological impact if they’ve really given their all and were very committed, yet were still let go.”

With the current economic crisis, Goldsmith points out that while there is fear on many different levels – about the status of 401(K’s) and preparation for retirement, about being able to provide for children especially those nearing or enrolled in college – fear of unemployment can be one of the most damaging,” concludes Goldsmith. “The situation right now is fraught with the potential to have a great impact on the overall emotional well being of American society.”