Unemployment and life satisfaction: a non‐linear adaptation process

Purpose – The aim of this paper is to model the dynamic path of adjustment towards pre‐unemployment levels of wellbeing for a group of full‐time workers who experienced job loss. Design/methodology/approach – Based on data from the German Socio‐economic Panel, a large‐scale panel survey, the paper captures the non‐linear nature of the adaptation process by using an Exponential Smooth Transition Autoregressive (ESTAR) model. Findings – The study finds that adaptation takes place in a non‐linear fashion, with the speed of adjustment being higher for high earners, those with high pre‐unemployment levels of life satisfaction and those who were most satisfied with their jobs before becoming unemployed. It also finds that most of the adaptation takes place during the first year of unemployment, with adaptation speeds decreasing with unemployment duration, suggestive of possible habituation effects being present. Originality/value – This is the first study to model the dynamic path of adjustment towards pre‐unemployment wellbeing levels as a non‐linear process. Despite the challenge posed by adaptation theory and the recent interest in the wellbeing effects of job loss, there is only sparse empirical evidence on the dynamics of the adaptation to unemployment process.