Due to its extraordinary explanatory power for individual behavior, the
interest in the concept of locus of control (LOC) has increased substantially
within applied economic research. But, even though LOC has been found to
affect economic behavior in many ways, the reliability of these findings is at
risk as they commonly rely on the assumption that LOC is stable over the life
course. While absolute stability has been generally rejected, the extent to
which LOC and thus personality changes is, nonetheless, strongly debated. We
contribute to this discussion by analyzing the effect of unemployment on LOC.
Based on German panel data, we apply a difference-in-difference approach by
using an involuntary job loss as trigger for unemployment. Overall, we find a
significant shift in stated LOC due to unemployment. Because the effect is
observable during unemployment only and not heterogeneous with respect to
individual characteristics or unemployment duration, we conclude that only the
stated LOC is biased during unemployment but the underlying personality trait
itself is not affected
