Finance and Economics；Age and happiness；Pay, peers and pride;

How older workers can find happiness;

Knowing that you are paid less than your peers has two effects on happiness. The well-known one is negative: a thinner pay packet harms self-esteem. The lesser-known one is called the “tunnel” effect: high incomes for peers are seen as improving your own chances of similar riches, especially if growth, inequality and mobility are high.

A paper co-authored by Felix FitzRoy of the University of St Andrews and presented this week at the Royal Economic Society in Cambridge separates the two effects using data from household surveys in Germany. Previous work showed that the income of others can have a small, or even positive, overall effect on people's satisfaction in individual firms in Denmark or in very dynamic economies in transition, such as post-communist eastern Europe. But Mr FitzRoy's team theorised that older workers, who largely know their lifetime incomes already, will enjoy a much smaller tunnel effect.

The data confirm this hypothesis. The negative effect on reported levels of happiness of being paid less than your peers is not visible for people aged under 45. In western Germany, seeing peers' incomes rising actually makes young people happier (even more than a rise in their own incomes, remarkably). It is only those people over 45, when careers have “reached a stable position”, whose happiness is harmed by the success of others.

The prospect of 20-plus years of bitterness might make retirement seem more appealing. But the real gains in happiness from retirement go not to the outshone, but to the out-of-work. Unemployment is known to damage happiness because not working falls short of social expectations. This loss of identity cannot be compensated for by unemployment benefits or increased leisure time. A paper presented at the same conference by a team represented by Clemens Hetschko of Freie Universit?t Berlin uses the same German household data to show that the spirits of the long-term unemployed rise when they stop looking for work, go into retirement and no longer clash with social norms.

Those with jobs are no happier after they retire, however, perhaps because their lives already line up with social expectations. Indeed, retiring early from work can have nasty side-effects. Another paper, co-authored by Andreas Kuhn of the University of Zurich, investigates the effect of a change in Austrian employment-insurance rules that allowed blue-collar workers earlier retirement in some regions than others. Men retiring a year early lower their odds of surviving to age 67 by 13%. Almost a third of this higher mortality rate, which seemed to be concentrated among those who were forced into retirement by job loss, was caused by smoking and alcohol consumption. If you're in a job, even an underpaid one, hang on in there.

A person's utility does not only depend on individualistic consumption of material goods and leisure but is also influenced by how well a person conforms to the norms and ideals of the social category she belongs to. Applying identity theory to the relationship between unemployment and life satisfaction implies that unemployed people are not only dissatisfied with their life because they have lower incomes, but also because they deviate from the norms of their social category under which they are expected to work. This explains the inability of the long-term unemployed to adapt to unemployment: they do not give up regarding employment as part of the social norm they strive to fulfill. Since they continuously deviate from this norm, the long-term unemployed get low recognition from others, often become negatively stereotyped, and experience social isolation and stigmatization, which can be interpreted as sanctions to fulfill the norm to work.