Changing Identity: Retiring From Unemployment

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.