Download Retirement raises happiness of unemployed people

RETIREMENT RAISES HAPPINESS OF UNEMPLOYED PEOPLE
Unemployed people are much happier as soon as they retire. Indeed, their life
satisfaction is exactly the same as before they became unemployed. This jump in
happiness is typically 50% higher than most people report after they have just got
married. And it comes about because they no longer feel inadequate about not working.
These are among the findings of research into the effects of unemployment on people’s
identity and self worth by Clemens Hetschko and colleagues, to be presented at the
Royal Economic Society’s 2012 annual conference.
Looking at survey data from Germany, the researchers find that people who had been
unemployed for six months or more before retirement report a jump in their happiness
once they retire, whereas there is no such change for people who were previously
employed. This is particularly the case for men. By correcting for the influence of other
factors, such as the change in income or health, the authors find that:
 The average happiness – of ‘life satisfaction’ – of a long-term unemployed man
increases by around 0.3 points on a life satisfaction scale from 0 to 10. This is
50% higher than the life satisfaction increase caused by marriage.
 If a formerly unemployed man was actively looking for a job before retiring, his
average life satisfaction increases by 0.7 points – three times as much as when
getting married.
 This effect is even more pronounced if the person has had several
unemployment spells before retiring.
 Women who become unemployed for the first time shortly before retiring do not
benefit much from retiring. But if they had been unemployed several times during
their life, their life satisfaction also improves considerably after retiring.
The authors explain this effect using the theory of identity. According to the theory, life
satisfaction depends on a person’s ability to meet the norms they expect of themselves.
People who like to see themselves as achieving, working members of society will be
unhappy when they are unemployed, since they can no longer live up to what is
expected of them. Retirement solves this problem because people’s identity changes –
they no longer expect to be working so do not feel down about not doing so.
The study also shows that the unemployed, once retired, completely recover and
restore their old selves. As soon as they retire, their life satisfaction is exactly the same
as before they became unemployed.
As unemployment reaches record levels in the UK, this research can shed light on the
effects this may have on people’s happiness. The authors comment:
‘Our analysis demonstrates the immense impact that the loss of identity resulting
from unemployment has on an individual’s wellbeing.
‘Since the life satisfaction of the formerly unemployed retirees returns to about
the same as before they became unemployed, we can conclude that the loss of
identity is, for the most part, responsible for the negative effect of unemployment
on a person’s wellbeing.’
More…
Hardly any other event has such a strong negative effect on a person’s wellbeing as
unemployment. The loss of life satisfaction is considerably higher than can be
explained by the loss of income.
Even if income losses were to be fully compensated (for example, via social transfer
payments), the unemployed would still be much less satisfied with their lives than
employees receiving an equal work income. While various factors could be responsible
for this phenomenon, the findings of this research show that it is, above all, the loss of
identity that makes the unemployed unhappy.
According to the economic theory of identity, life satisfaction depends on a person’s
ability to meet the norms of the particular social category to which one aspires to
belong. A person who likes to see himself as an achieving working member of society
will be unhappy when unemployed, since he can no longer meet the norms of the social
category of working people.
Retirement, however, solves this problem: once people retire, they are no longer
expected to be employed.
The research analyses this effect of retiring in detail, using German data. After retiring,
long-term unemployed people experience a considerable increase in life satisfaction,
whereas the life satisfaction of formerly employed retirees, on average, does not
change.
By statistically correcting their measures for the influence of other factors, such as the
change in income or health, the researchers can quantify the direct effect of retiring
from unemployment: the average life satisfaction of a long-term unemployed man
increases by approx. 0.3 points on a life satisfaction scale from 0 to 10, which is 50%
higher than the life satisfaction increase caused by marriage.
If a formerly unemployed man was actively looking for a job before retiring, his average
life satisfaction even increases by 0.7 points, that is, three times as much as when
getting married. This effect is even more pronounced if the person has had several
unemployment spells before retiring.
Women, on the other hand, who became unemployed for the first time shortly before
retiring, do not particularly benefit from retiring. But if they had been unemployed
several times during their life, their life satisfaction too improves considerably after
retiring.
The researchers also show that the unemployed, once retired, completely recover and
restore their old selves: their life satisfaction immediately on retiring is exactly the same
as before they became unemployed.
Does this mean that, at a certain point, all unemployed people should be forced to
retire? It is certainly not as simple as that. Many participants from the sample determine
their own time of retiring. A compulsory retirement age would affect everyone, though,
including those who may not be ready yet to give up their social status of belonging to
the achieving (working) category. Compulsory retirement would not make them any
happier.
In a nutshell, this analysis demonstrates the immense impact that the loss of identity
resulting from unemployment has on an individual’s wellbeing. Since the life satisfaction
of the formerly unemployed retirees returns to about the same as before they became
unemployed, it is possible to conclude that the loss of identity is, for the most part,
responsible for the negative effect of unemployment on a person’s wellbeing.
ENDS
Contact:
Clemens Hetschko
Freie Universität Berlin
+49 30 838 51244
Email: [email protected]