This paper investigates the non-pecuniary costs of unemployment using longitudinal data on life satisfaction of working-age men in Germany. It finds that unemployment significantly reduces life satisfaction, with the non-pecuniary effects far exceeding the pecuniary effects from lost income. The study uses a large representative panel dataset to address limitations of cross-sectional data, such as difficulty in determining causality and omitted variable bias. Panel data allow for controlling individual-specific fixed effects, revealing that unemployment has a persistent negative impact on satisfaction even after accounting for individual differences. The study also distinguishes between non-participation and unemployment, finding that unemployment has a larger negative effect on satisfaction than non-participation. The analysis shows that unemployment leads to substantial decreases in satisfaction, with the effect being more pronounced for the unemployed than for those out of the labor force. The paper also decomposes the costs of unemployment into pecuniary and non-pecuniary components, finding that non-pecuniary costs are much larger. The results suggest that unemployment is a significant factor in reducing life satisfaction, and that the psychological effects of unemployment are substantial. The study concludes that panel data and fixed effects models provide robust evidence of the negative impact of unemployment on satisfaction, highlighting the importance of considering non-pecuniary costs in policy analysis.This paper investigates the non-pecuniary costs of unemployment using longitudinal data on life satisfaction of working-age men in Germany. It finds that unemployment significantly reduces life satisfaction, with the non-pecuniary effects far exceeding the pecuniary effects from lost income. The study uses a large representative panel dataset to address limitations of cross-sectional data, such as difficulty in determining causality and omitted variable bias. Panel data allow for controlling individual-specific fixed effects, revealing that unemployment has a persistent negative impact on satisfaction even after accounting for individual differences. The study also distinguishes between non-participation and unemployment, finding that unemployment has a larger negative effect on satisfaction than non-participation. The analysis shows that unemployment leads to substantial decreases in satisfaction, with the effect being more pronounced for the unemployed than for those out of the labor force. The paper also decomposes the costs of unemployment into pecuniary and non-pecuniary components, finding that non-pecuniary costs are much larger. The results suggest that unemployment is a significant factor in reducing life satisfaction, and that the psychological effects of unemployment are substantial. The study concludes that panel data and fixed effects models provide robust evidence of the negative impact of unemployment on satisfaction, highlighting the importance of considering non-pecuniary costs in policy analysis.