Unemployment and underemployment, aging populations, and unsustainable retirement policies, among others, pose serious challenges for welfare states around the world (Derviş 2013). The global financial crisis and its uneven recovery have heightened these issues, with the new labor force entrants taking the hardest hit. In 2012, the youth unemployment rate (ages 15–24) peaked to 53 percent in Spain and nearly 40 percent in Portugal, compared with 16 percent in the U.S. (OECD 2013). The young are disproportionately affected even in countries with relatively lower unemployment rates such as the U.S. (Burtless 2013), and the long-term effects of delayed labor force entrance could be especially harmful. On the other end of the age distribution, unsustainable fiscal deficits in many countries are forcing the reconsideration of public pensions and retirement schemes. Given higher life expectancies and low fertility rates in the developed world, moreover, the share of older workers will continue to grow.
One solution to these challenges, recently proposed by Kemal Derviş (2013), entails more individual choice regarding employment, including a scheme whereby older workers gradually lower their working hours but remain in the labor force (and pay taxes) until the age of 701. Gradual retirement could be beneficial for governments, employers, and workers. Specifically, from a public finance perspective, phased-in retirement will likely increase tax revenues and reduce expenditures on pensions and retirement benefits. Moreover, while European employers view older workers as a burden (vanDalen et al. 2010), late-life employees are valuable to organizations as they have experience and competence. Burtless (2013), for example, documents the pay premium that late-life workers receive compared to their younger counterparts in the U.S., suggesting that older workers are more productive. Finally, late-life work can be beneficial for older employees as well. Research shows that late-life work has a positive effect on well-being in the U.S. (Calvo 2006) while involuntary retirement decreases well-being in the U.S. and Germany (Bonsang and Klein 2012; Calvo et al. 2009).
From a general equilibrium perspective, phased-in retirement constitutes an increase in the supply of older workers, which decreases their wages. As a result, if young and old workers are substitutes, employers may prefer to hire older workers which in turn reduces both the number of young people employed and their wages2. The fiscal contributions from extended retirement could be used to mitigate any harmful effects on younger workers through apprenticeships and training programs. While general equilibrium analyses on the effects of altering employment and retirement schemes rarely factor in subjective well-being, work arrangements have differential effects for the happy and unhappy people, moreover.3
A priori, the potential individual well-being effects of changing employment and retirement policies are ambiguous. The results from smaller-scale experiments or experiences with altering these schemes from other countries may be misleading as scale and context matter. We therefore attempt to inform the policy discussions, as outlined by Derviş (2013) and in Aaron and Burtless (2013), among others, by furnishing insights from the relatively novel “science” of well-being measurement. Specifically, we explore the relationship between voluntary part-time employment, late-life work, and retirement and various well-being dimensions and job satisfaction using individual-level data from the Gallup World Poll (GWP) for a number of European countries and the U.S.
We build on several strands of research. It is well-established that the unemployed have lower well-being levels than the employed in virtually every context that relationship has been studied (Clark et al. 2001; Winkelmann and Winkelmann 1998; Hetschko et al. 2013; DiTella et al. 2001; Clark and Oswald 1994; Ravallion and Lokshin 2001). In European countries, for example, the jobless experience a life satisfaction reduction of 0.33 (on a scale of 1 “not at all satisfied” to 4 “very satisfied”) (DiTella et al. 2001) and even if compensated for the income loss, the unemployed would still be less happy compared to identical employed counterparts (Frey 2008). Clark et al. (2001) and Clark (2003) show, moreover, that unlike other adverse life events, past unemployment has lasting perverse effects on subjective well-being. The psychology literature also documents the “scarring” effects on the well-being of the long-term unemployed (Lucas 2007; Lucas et al. 2004). Indeed, long-term unemployment stands in contrast to other major life-events, such as divorce and physical injury, to which individuals adapt (i.e., return to their baseline well-being levels).
Retirees’ well-being, meanwhile, varies across countries because of different retirement norms and the generosity of public pensions. Research shows that the retired are more satisfied with their lives than the average in the U.S., less satisfied than the average in Russia, and the same as the average in Latin America (Graham and Pettinato 2002; Graham 2009)4. A study of male Canadian retirees demonstrates that the relationship between life satisfaction and retirement remains relatively stable over the course of retirement (Gall et al. 1997)5. Early on, recent retirees experience a life satisfaction boost and retirees’ perceptions of health, satisfaction with activity and overall life satisfaction persist 6–7 years post-retirement. A study using panel data from the U.S. shows, however, that retirement can lead to three psychological well-being patterns (Wang 2007). The majority of retirees maintain the same levels of pre-retirement well-being throughout their retirement years by sticking to their patterns of thought and behavior. A second group of retirees, especially those who disliked their jobs, experience a gain in psychological well-being which lasts throughout their retirement years. Finally, a third group of retirees experience a sharp decline in well-being due to loss of identity and status followed by a well-being recovery. Much less is known, however, about how different working and retirement arrangements – such as part-time work and flexible employment– correlate with well-being for older workers (as well as for other age cohorts).
Furthermore, employment arrangements and job types play a role for subjective well-being (SWB) comparisons. Knabe and Rätzel (2010) show that those who are unemployed but expecting to return to the labor force soon are no less happy than those who are employed in jobs with medium job security, and are in fact happier than those with minimal job security6. Several studies find that the self-employed are more satisfied with their jobs than those working for an employer in the OECD countries (Dolan et al. 2008; Binder and Coad 2011) and in other contexts (Benz and Frey 2008). In contrast, while mixed, the evidence from Latin America seems to suggest that the self-employed are less satisfied with their lives and jobs, due to the precarious nature of self-employment in the region – self-employment there is more likely to be involuntary and in the informal sector (Graham and Pettinato 2002; Graham and Felton 2006). Indeed, of the self-employed in Latin America, only business owners are more satisfied with their lives, incomes, and jobs, while the self-employed in more precarious occupations, such as farmers, fishermen, and informal employees, are less satisfied than the average (Aguilar et al. 2013).
Moreover, social norms related to employment mediate the employment-SWB relationship (Hetschko et al. 2013). While the unemployed are unhappier than the employed, the well-being effects are mitigated by the local unemployment level or norms about the generosity of the welfare system. For example, the unemployed in Britain are less unhappy when the regional unemployment rate, which approximates the strength of the social norm, is higher (Clark and Oswald 1994; Clark 2003; Shields and Price 2005). This result holds across different countries such as Australia (Shields et al. 2009), South Africa (Powdthavee 2007), Germany (Clark et al. 2010), and Russia (Eggers et al. 2006). For Russia, Eggers et al. (2006) demonstrate that high regional unemployment rates mitigate the individual well-being effects of unemployment and precarious employment and Grogan and Koka (2013) find that men face stigma in some non-market activities, suggesting that the effects of unemployment on SWB are more severe for men than for women. Based on research in Swiss cantons, moreover, Stutzer and Lalive (2004), show that the extent of canton-level support for unemployment benefits mediates the well-being gap between the unemployed and the employed. The unemployed who transition into retirement realize gains in life satisfaction precisely because they enter into a phase in life when working is unimportant (Hetschko et al. 2013).
In addition, scholars distinguish between hedonic and evaluative well-being (Graham 2012; Kahneman and Krueger 2006; Kahneman and Deaton 2010). Evaluative well-being survey items capture how people assess their lives as a whole, through general life satisfaction questions, or via the Cantril ladder question, which asks respondents to compare their life to the best possible life they can imagine, based on an eleven-point scale or ladder, where zero is their worst possible life and ten is their best possible life. Hedonic well-being, in contrast, is about people’s affective states and encompasses day-to-day positive and negative emotions related to work commutes, one’s immediate health state, job quality, and others (Graham 2012). Hedonic well-being metrics include both positive affect (e.g., smiling, experiencing happiness or joy) and negative affect (e.g., experiencing worry, sadness, anger, or stress).
Looking at both evaluative and hedonic well-being dimensions is particularly relevant in the case of employment and late-life work. For example, research shows that the unemployed have lower evaluative well-being levels (e.g., life satisfaction) than the employed but experience similar levels of positive and negative affect: while the jobless suffer consumption losses, these are partially offset by having more leisure time (Knabe et al. 2010). Furthermore, what a person expects to achieve in the future may be as important as current circumstances. Some people are in work arrangements because of what they want to achieve over their life course, rather than because they make their day-to-day living more pleasant. The balance between such objectives can change over the life course, moreover. While people may choose arrangements which enhance their daily living, at least temporarily, at the expense of career objectives, daily experiences can affect long-term objectives. Krueger et al. (2011) find, for instance, that the time spent looking for jobs is the saddest part of the day for the unemployed, and the longer those times last, the higher the likelihood that they cease the job search.
Building on the extant literature, we pose two research questions: (i) What is the relationship between employment status, work arrangements, and SWB (including job satisfaction)? and (ii) Is there an additional well-being effect for late-life workers? Our main contribution to the existing knowledge is the detailed exploration of the relationship between voluntary part-time work and different subjective well-being and job satisfaction dimensions, especially as related to late-life work. We find that voluntary part-time workers are happier, experience less stress and anger, and are more satisfied with their work than other workers. In addition, the propensity score matching results show that older workers who remain in the labor force under voluntary part-time or full-time arrangements have higher well-being than comparable retirees.
Different employment and retirement schemes may be better suited for people depending on their career objectives, innate well-being levels, and on where they are in the life cycle. Understanding how employment, retirement, and late-life work relate to well-being can contribute to ongoing public policy discussions in the U.S., Europe, and beyond. Given aging populations and the increasing role of work in retirement in several countries, understanding the well-being effects of flexible work arrangements such as late-life work may increase in relevance. Employment and late-life work can provide social contacts and interactions, personal growth, autonomy, and sense of purpose. The latter may be particularly relevant for older cohorts when the opportunities for active engagement decrease (Fisher, 1995).