Unemployment makes people unhappy. When asked "All things considered, how satisfied are you with your life as a whole these days?", unemployed report lower life satisfaction than employed people. These answers represent a respondent's personal assessment of general life satisfaction, but give only limited insights of what makes people unhappy when they are unemployed or what makes them happy when they are employed.

In this paper, we shed some light on these questions by comparing general life satisfaction with a person's well-being on a moment-to-moment basis. For this purpose, we make use of the Day Reconstruction Method (DRM, Kahneman et al. 2004a,b) to determine how a persons' average well-being or emotional affect over the course of the day correlates with their employment status. In their global judgment, respondents may consider "being in employment" as a desirable aspect of life and will anchor their judgment of life satisfaction on that general assessment. Concerning their day-to-day experiences, however, the unemployed may have adjusted to the new life circumstances and do not report feelings that are much different from those of the employed people.

Krueger and Mueller (2008) compare the emotional well-being of employed and unemployed persons during similar activities and find that the unemployed report feeling more sadness, stress and pain than the employed. Thus, they cannot confirm that unemployed adjust to new life circumstances and their results suggest that results from life satisfaction questionnaires also show up in the measurement of experienced utility. However, from Kahneman et al. (2004a,b) we also know that people experience negative feelings mostly during episodes of work and work-related activities, such as commuting. Thus, when comparing a person's total utility, measured as the integral over the instant (or momentary) utility over the course of the day, we have to consider both effects, a saddening effect of being unemployed and a time-composition effect.

We conducted a DRM study with 1054 personal interviews in Germany, in which we collected data on how employed and unemployed people used their time during a specific day, their affect levels during all activities they were engaged in during that day, and their general life satisfaction. This allows us to compare unemployed and employed people with respect to i) the differences in the assessment of emotional affects, ii) the differences in the composition of activities during the whole course of the day, and iii) the difference in the duration of these activities.

Our results first show that unemployed persons declare lower levels of satisfaction with their lives in general. We also find that employed people rank working and work-related activities among the least enjoyable activities but experience more positive feelings than unemployed when engaged in similar activities. These results are in line with previous research.

However, we find that the average experienced utility of an unemployed person does not differ from that of an employed person. This result shows up for three different measures of momentary experienced utility that take the duration of the activities into account: the duration-weighted average net affect, the U-index, and the duration-weighted average episode satisfaction. The unemployed are able to compensate the utility gap from similar activities by spending the time the employed have to spend in work and work-related activities in more enjoyable activities. The two distinct effects - the saddening effect and the time-composition effect - also become transparent when we distinguish between Sunday and working days. On Sunday, when the time-composition effect is not at work, employed people report higher experienced utility than the unemployed. On weekdays, the unemployed seem to be more happy with the course of the day.

The apparent puzzle that people are unhappy because they are unemployed but happy to spend their time in other ways than working may be explained by the way in which people adapt to unemployment. Using both the standard measure of life satisfaction and the measures of experienced utility, we can identify to what extent hedonic adaptation and aspiration adaptation are at work when people become unemployed and stay unemployed for a long time. The long-term unemployed experience their life circumstances as more or less equally satisfying as employed people. This suggests some type of hedonic adaptation. While we do not have (complete) hedonic adaptation when we look at similar activities, hedonic adaptation occurs by the change in the way people use their time. By contrast, aspirations do not seem to adjust to the new circumstances. Being employable sets the benchmark: being in employment is better than being unemployed - despite the fact that working makes one unhappier than not working.