Looking Back in Anger? Retirement and Unemployment Scarring

Abstract

Abstract Unemployment affects future working conditions and job security negatively, thus reducing life satisfaction after reemployment. These employment-related scars of unemployment should not matter anymore when a person has retired. Using German panel data, we analyze unemployed persons’ transition into retirement to test whether unemployment leaves scars beyond working life and thus for reasons that are not employment-related. We find that involuntary unemployment between the last job and retirement causes a loss in life satisfaction after retirement. People who influenced or even initiated unemployment, by contrast, show no scarring. The scarring effect goes beyond what can be explained by the income loss originating from reduced pensions. It shows up independently of whether the unemployment spell directly before retirement was the only experience of unemployment in a person’s career, or whether she had also experienced unemployment at earlier times. We do not find evidence that early retirement or involuntary retirement are the reasons why formerly unemployed retirees display unemployment scarring.