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Coping with unemployment: Longitudinal findings on how financial and social resources mediate and moderate the impact of unemployment on psychological distress

In this article we study changes in psychological distress caused by unemployment. We investigate to what extent diminishing financial (economic vulnerability) and social coping resources (social isolation) can explain why the persistently unemployed and persons who experienced a transition into unemployment experience an increase in psychological distress, compared to the persistently employed (mediation). Furthermore, we test the extent to which a stronger increase in the lack of financial and social coping resources magnifies the psychological distress increase due to unemployment (moderation). Longitudinal panel analyses on the two waves (2010 and 2014) of the NELLS-panel show that: (1) the persistently unemployed and people who experienced an unemployment transition experience more – and a significantly stronger increase in – psychological distress compared to the persistently employed, the persistently unemployed being in the most unfavorable situation, that: (2) an increase in economic vulnerability and in social isolation does not explain these differences but (3) does exercise an independent impact on increases in psychological distress and that: (4) an increasing lack of financial and social coping resources magnifies the increase in psychological disstress caused by unemployment. Due to cutbacks in national and local social security arrangements, the unemployed nowadays likely experience higher levels of, and stronger increases in psychological distress.