Unemployed people are much happier as soon as they retire, according to research by Clemens Hetschko, Andreas Knabe and Ronnie Schöb. Their study, which is published in the March 2014 issue of the Economic Journal, finds that the jump in happiness is typically 50% higher than is reported by most newly-weds – and it seems to come about because the previously unemployed no longer feel inadequate about not being in work.


To investigate the effects of retirement on unemployed people''s identity and feelings of self-worth, the researchers look at survey data from Germany. Taking account of the influence of other factors, such as the change in income, they can quantify the direct effects of retiring from unemployment:


· The average happiness of unemployed people – their self-reported ''life satisfaction'' – 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.


· The life satisfaction of people who retire from employment does not change on average.


· As soon as unemployed people retire, their life satisfaction is the same as before they became unemployed.


· The increase in happiness due to retirement is much more substantial and significant for unemployed men than for unemployed women: men''s life satisfaction increases by more than 0.5 points.


· If formerly unemployed people were receiving social benefits before retiring, their average life satisfaction increases by more than 0.7 points – that is, three times as much as when getting married.


· The effect of retirement on unemployed people''s wellbeing does not depend on whether or not they could decide exactly when to retire. Unemployed people who are forced to retire by the rules of the German social code also experience a substantial increase in life satisfaction.


The authors explain the effects of retirement on previously unemployed people''s happiness using the theory of social identity. According to this 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 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.''


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 suggest that it is, above all, the loss of identity that makes the unemployed unhappy.


''Changing Identity: Retiring from Unemployment'' by Clemens Hetschko, Andreas Knabe and Ronnie Schöb is published in the March 2014 issue of the Economic Journal. Clemens Hetschko and Ronnie Schöb are at Freie Universität Berlin. Andreas Knabe is at Otto-von-Guericke-Universität Magdeburg.