Using specific panel data of German welfare benefit recipients, we investigate
the non-pecuniary life satisfaction effects of in-work benefits. Our empirical
strategy combines difference-in-difference designs with synthetic control
groups to analyze transitions of workers between unemployment, regular
employment and employment accompanied by welfare receipt. Working makes people
generally better off than being unemployed, but employed welfare recipients do
not reach the life satisfaction level of regular employees. This implies that
welfare receipt entails non-compliance with the norm to make one’s own living.
Our findings allow us to draw cautious conclusions on employment subsidies
paid as welfare benefits.