Besides the objectively measurable impact on the financial situation of affected households, unemployment triggers serious psychosocial consequences. Life satisfaction and social status decline drastically and processes of social exclusion take place. But what effect does labour market policy have? Can activating labour market policies offset these processes and fulfil the integrative and psychosocial functions of work? Whereas participants in the German activation scheme One-Euro-Jobs report to be significantly more integrated into society than the openly unemployed, participation does not alter the low social status of the interviewed welfare benefit recipients. Their low social status provides a plausible explanation for the fact that the life satisfaction of participants lags behind the life satisfaction of regularly employed even if pecuniary and other socio-economic characteristics are controlled for.