Background The financial crisis of 2008/2009, for some also in 2011, was accompanied by increasing social inequality and unemployment, which strained the welfare generosity systems in many countries. Welfare generosity redistributes internal resources to decrease poverty and increase equal opportunities. This was used by many countries to combat the crisis. We investigated the effects of increased social inequality, unemployment and welfare generosity on life satisfaction (LS) before and after the crisis. Methods A representative sample from the European Social Survey (2002 to 2014) with data from 26 countries was used (N = 301,559). Time from start of crisis (either 2008 or 2010–2012) was determined separately for each case. LS was measured with a single question with 11 response alternatives. Social inequality was measured using the Gini index. Unemployment was measured by a single question (No/Yes). Welfare generosity was measured using expenditure on social protection (PPS) per inhabitant (Eurostat). Data were analyzed by multilevel analysis and multilevel mediation analysis. Results Welfare generosity was associated with decreased levels of social inequality. The negative relationship between social inequality and LS was weakened when controlling for welfare generosity after the financial crisis. This effect of welfare generosity was not seen for the negative impact of unemployment on LS. Conclusion The financial crisis stimulated the use of welfare generosity in Europe and strengthened the positive relationship between welfare generosity and LS. Social inequality, unemployment and welfare generosity played significant mediator roles between the crisis and LS, with increased welfare generosity far more strongly associated with increased LS. Measures that increase social equality in a country and thereby increase equal opportunity for all social classes, may be assumed to be effective in improving the general LS of the population in a country in times of economic crisis.
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