My column Tuesday noted that the long-term unemployed have ever-dwindling chances of finding jobs. Once you’ve been out of work for at least 27 weeks, your chances of being out of the labor force about a year later are nearly three times as high as your chances of holding down a stable, full-time job.
Usually we think of high dropout rates as a bad thing: People are giving up on working altogether, even though they very likely still have productive skills to offer the economy. But a new paper puts a slightly more positive spin on this transition — at least, perhaps, for older workers.
The paper, published in the Economic Journal, finds that long-term unemployed people become much happier as soon as they retire. The authors argue that this happens because formerly unemployed people no longer feel inadequate about not having a job.
The paper is based on German survey data and finds that self-reported “life-satisfaction” increases by around 0.3 points on a scale from 0 to 10 for people who transition from unemployment to retirement. That’s about twice the increase in happiness that newlyweds experience. The average person who transitions from employment to retirement, on the other hand, does not experience a bump in life satisfaction.
Here’s a chart, taken from the paper, showing trends in life-satisfaction in the years surrounding retirement, for people who had been working and those who had been unemployed in the year before retirement:
- Courtesy of The Economic Journal, Volume 124, Issue 575, pages 149–166, March 2014.
Unemployed men experience a bigger boost in happiness upon retirement than unemployed women do, perhaps because breadwinning is more central to men’s sense of self-worth. The increase for women, in fact, is not statistically significant.
And while much has been written (including by me) about the scarring effects of unemployment, the paper also finds that once unemployed people retire, their life satisfaction returns to its pre-unemployment levels. The authors write:
These results also shed light on the reason for the perplexing finding that people are better able to adapt to severe life events, such as widowhood, than to unemployment (Diener et al., 2006). While these other life events are irreversible, the unemployed are potentially able to return to the workforce. They thus feel the permanent pressure to fulfil the social norms of their social category – a pressure which they can only escape by changing the social category. Changing into retirement is a socially accepted change and thus a viable change for the individual. Rather ironically, it is hope that keeps people unhappy while unemployed, and it is only when hope fades that they will recover.
From a policy perspective, we should probably care about well-being at least as much as we care about more traditional economic metrics like income and productivity — which suggests that, hey– maybe it’s not such a bad thing that so many Americans are dropping out of the workforce if that decision is indeed making them happier.
That said, this study doesn’t necessarily mean we should be encouraging America’s long-term unemployed to retire. The structure of the German social safety net is different from that in the United States, for one. And this type of metric doesn’t capture the other kinds of costs incurred when discouraged workers drop out of the labor market, which are borne both by taxpayers (in the form of social safety net services) and the former workers’ families and friends.