Changing Identity: Retiring From Unemployment


  • The authors are grateful for comments by the participants of the HEIRs Conference on Markets and Happiness 2011, the CESifo Area Conference in Social Protection 2011, the ifo Dresden Workshop on Labour Market and Social Policy 2011, the Annual Meeting of the Research Committee in Public Finance of the German Economic Association 2011, the Annual Conference of the German Statistical Society 2011, the Annual Conference of the Royal Economic Society 2012, the Annual Conference of the German Economic Association 2012 and the Annual Conference of the IIPF 2012. We also thank participants of seminars at the University of Kiel, the University of Umeå, the Leeds Metropolitan University, the University of Trier, and DIW Berlin as well as Simon Lüchinger, the editor Jörn-Steffen Pischke and two anonymous referees for helpful comments. The usual disclaimer applies.


Using German panel data, we show that unemployed people are, on average, less satisfied with their life than employed people, but they report a substantial increase in their life satisfaction upon retirement. We interpret this finding using identity theory. Retirement raises the identity utility of the unemployed because it changes the social norms they are supposed to adhere to. The social norm for people of working age prescribes that able-bodied people should be employed, whereas the social norm for the retired does not contain such expectations. Findings for various subgroups are consistent with that interpretation.