The Restorative Effect of Work after Unemployment: An Intra-individual Analysis of Subjective Well-being Recovery through Re-employment

A substantial body of research shows that unemployment has detrimental effects on individuals’ subjective well-being, which is consistent with the prediction of the theory of latent functions of employment. However, empirical research also shows that individuals generally fail to return to their baseline well-being even after exiting unemployment, a puzzle that runs counter to the latent functions theory. This study argues that the ‘scarring effect’ uncovered by the previous literature is largely a statistical artefact resulting from the use of inadequate measures of baseline well-being and failure to distinguish those who follow different routes to exit unemployment. Applying fixed effect modelling to a UK longitudinal survey that followed approximately 10,000 individuals annually for eighteen years, this study shows that recovery of subjective well-being upon re-employment is fast, complete and enduring. By contrast, transitions into economic inactivity are accompanied by persistent scars on subsequent well-being trajectory. This study contributes to the literature by closing a hitherto unresolved gap in the explanatory power of latent function theory and similar work characteristics perspectives on the effects of re-employment