IDEAS home Printed from https://ideas.repec.org/a/zbw/ifweej/201843.html
   My bibliography  Save this article

Subjective well-being and income: A compromise between Easterlin paradox and its critiques

Author

Listed:
  • Yasar, Rusen

Abstract

Despite rising popularity of subjective well-being (SWB) as a proxy for utility, its relationship with income is still unresolved. Against the background of debates around the 'Easterlin paradox', this paper seeks a compromise between two positions: one that insists on individual relative income, and one that finds similarity between individual and aggregate levels. Proposing a model which puts the emphasis on the interaction between individual and aggregate-level factors, it argues that the effect of relative income on SWB varies across countries as a function of average income, in addition to a relatively small direct effect of the latter, in partial agreement with the two major positions. The model is tested crosssectionally on the data from the latest wave of World Values Survey. The results from hierarchical mixed-effect models confirm the main argument. But further examination reveals that there is still unaccounted variation especially in middle-income economies.

Suggested Citation

  • Yasar, Rusen, 2018. "Subjective well-being and income: A compromise between Easterlin paradox and its critiques," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-23.
    • Handle: RePEc:zbw:ifweej:201843
    DOI: 10.5018/economics-ejournal.ja.2018-43
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2018-43
    Download Restriction: no
    File URL: https://www.econstor.eu/bitstream/10419/180891/1/1026162742.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.5018/economics-ejournal.ja.2018-43?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Paolo Verme, 2011. "Life Satisfaction And Income Inequality," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57(1), pages 111-127, March.
    2. Betsey Stevenson & Justin Wolfers, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 1-102.
    3. Anand, Paul & Krishnakumar, Jaya & Tran, Ngoc Bich, 2011. "Measuring welfare: Latent variable models for happiness and capabilities in the presence of unobservable heterogeneity," Journal of Public Economics, Elsevier, vol. 95(3-4), pages 205-215, April.
    4. Helliwell, John F. & Huang, Haifang, 2008. "How's Your Government? International Evidence Linking Good Government and Well-Being," British Journal of Political Science, Cambridge University Press, vol. 38(4), pages 595-619, October.
    5. Richard Easterlin, 2005. "Feeding the Illusion of Growth and Happiness: A Reply to Hagerty and Veenhoven," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 74(3), pages 429-443, December.
    6. Claudia Senik, 2005. "Income distribution and well‐being: what can we learn from subjective data?," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 43-63, February.
    7. repec:pri:cepsud:125krueger is not listed on IDEAS
    8. Andrew E. Clark & Sarah Flèche & Claudia Senik, 2016. "Economic Growth Evens Out Happiness: Evidence from Six Surveys," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 405-419, September.
    9. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
    10. Krueger, Alan B. & Schkade, David A., 2008. "The reliability of subjective well-being measures," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1833-1845, August.
    11. Bjørnskov, Christian & Dreher, Axel & Fischer, Justina A.V., 2010. "Formal institutions and subjective well-being: Revisiting the cross-country evidence," European Journal of Political Economy, Elsevier, vol. 26(4), pages 419-430, December.
    12. Ruut Veenhoven, 2005. "Inequality Of Happiness in Nations," Journal of Happiness Studies, Springer, vol. 6(4), pages 351-355, December.
    13. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    14. Ruut Veenhoven, 2005. "Return of Inequality in Modern Society? Test by Dispersion of Life-Satisfaction Across Time and Nations," Journal of Happiness Studies, Springer, vol. 6(4), pages 457-487, December.
    15. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    16. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2099-2123, August.
    17. Eugenio Proto & Aldo Rustichini, 2013. "A Reassessment of the Relationship between GDP and Life Satisfaction," PLOS ONE, Public Library of Science, vol. 8(11), pages 1-10, November.
    18. Daniel Kahneman & Richard H. Thaler, 2006. "Anomalies: Utility Maximization and Experienced Utility," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 221-234, Winter.
    19. Daniel Kahneman & Peter P. Wakker & Rakesh Sarin, 1997. "Back to Bentham? Explorations of Experienced Utility," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 375-406.
    20. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 53-72, Spring.
    21. Peggy Schyns, 2002. "Wealth Of Nations, Individual Income andLife Satisfaction in 42 Countries:A Multilevel Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 60(1), pages 5-40, December.
    22. Richard Easterlin, "undated". "Diminishing Marginal Utility of Income? A Caveat," University of Southern California Legal Working Paper Series usclwps-1004, University of Southern California Law School.
    23. Helliwell, John F., 2003. "How's life? Combining individual and national variables to explain subjective well-being," Economic Modelling, Elsevier, vol. 20(2), pages 331-360, March.
    24. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
    25. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    26. Radcliff, Benjamin, 2001. "Politics, Markets, and Life Satisfaction: The Political Economy of Human Happiness," American Political Science Review, Cambridge University Press, vol. 95(4), pages 939-952, December.
    27. Morawetz, David, 1977. "Income Distribution and Self-Rated Happiness: Some Empirical Evidence," Economic Journal, Royal Economic Society, vol. 87(347), pages 511-522, September.
    28. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur Stone, 2004. "Toward National Well-Being Accounts," American Economic Review, American Economic Association, vol. 94(2), pages 429-434, May.
    29. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
    30. Claudia Senik, 2005. "Income distribution and well-being: what can we learn from subjective data?," Post-Print halshs-00754101, HAL.
    31. Dolan, Paul & Peasgood, Tessa & White, Mathew, 2008. "Do we really know what makes us happy A review of the economic literature on the factors associated with subjective well-being," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 94-122, February.
    32. Michael Hagerty & Ruut Veenhoven, 2003. "Wealth and Happiness Revisited – Growing National Income Does Go with Greater Happiness," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 64(1), pages 1-27, October.
    33. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
    34. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    35. Richard Easterlin, 2005. "Diminishing Marginal Utility of Income? Caveat Emptor," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 70(3), pages 243-255, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasar, Rusen, 2017. "Subjective well-being and income: A compromise between Easterlin paradox and its critiques," Economics Discussion Papers 2017-113, Kiel Institute for the World Economy (IfW Kiel).
    2. Gregor Gonza & Anže Burger, 2017. "Subjective Well-Being During the 2008 Economic Crisis: Identification of Mediating and Moderating Factors," Journal of Happiness Studies, Springer, vol. 18(6), pages 1763-1797, December.
    3. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    4. Cordero, José Manuel & Salinas-Jiménez, Javier & Salinas-Jiménez, M Mar, 2017. "Exploring factors affecting the level of happiness across countries: A conditional robust nonparametric frontier analysis," European Journal of Operational Research, Elsevier, vol. 256(2), pages 663-672.
    5. Blanchflower, David G; Oswald, Andrew, 2011. "International Happiness," CAGE Online Working Paper Series 39, Competitive Advantage in the Global Economy (CAGE).
    6. Arie Kapteyn & Jinkook Lee & Caroline Tassot & Hana Vonkova & Gema Zamarro, 2015. "Dimensions of Subjective Well-Being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 123(3), pages 625-660, September.
    7. Beja, Edsel Jr., 2011. "Subjective well-being approach to the valuation of income inequality," MPRA Paper 34177, University Library of Munich, Germany.
    8. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    9. O'Donnell, Gus & Oswald, Andrew J., 2015. "National well-being policy and a weighted approach to human feelings," Ecological Economics, Elsevier, vol. 120(C), pages 59-70.
    10. Tobias Pfaff & Johannes Hirata, 2013. "Testing the Easterlin Hypothesis with Panel Data: The Dynamic Relationship between Life Satisfaction and Economic Growth in Germany and the UK," SOEPpapers on Multidisciplinary Panel Data Research 554, DIW Berlin, The German Socio-Economic Panel (SOEP).
    11. Pfaff, Tobias & Hirata, Johannes, 2013. "Testing the Easterlin hypothesis with panel data: The dynamic relationship between life satisfaction and economic growth in Germany and in the UK," CIW Discussion Papers 4/2013, University of Münster, Center for Interdisciplinary Economics (CIW).
    12. Pfaff, Tobias & Hirata, Johannes, 2013. "Testing the Easterlin hypothesis with panel data: The dynamic relationship between life satisfaction and economic growth in Germany and in the UK," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79965, Verein für Socialpolitik / German Economic Association.
    13. Di Tella, Rafael & Haisken-De New, John & MacCulloch, Robert, 2010. "Happiness adaptation to income and to status in an individual panel," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 834-852, December.
    14. Naoki Akaeda, 2020. "Contextual Social Trust and Well-Being Inequality: From the Perspectives of Education and Income," Journal of Happiness Studies, Springer, vol. 21(8), pages 2957-2979, December.
    15. Cordero, Jose M. & Salinas-Jiménez, Javier & Salinas-Jiménez, Mª Mar, 2014. "Assessing the level of happiness across countries: A robust frontier approach," MPRA Paper 57784, University Library of Munich, Germany.
    16. Koen Decancq & Marc Fleurbaey & Erik Schokkaert, 2015. "Happiness, Equivalent Incomes and Respect for Individual Preferences," Economica, London School of Economics and Political Science, vol. 82, pages 1082-1106, December.
    17. Jan-Emmanuel De Neve & George Ward & Femke De Keulenaer & Bert Van Landeghem & Georgios Kavetsos & Michael I. Norton, 2018. "The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 362-375, May.
    18. Hania Wu & Tony Tam, 2015. "Economic Development and Socioeconomic Inequality of Well-Being: A Cross-Sectional Time-Series Analysis of Urban China, 2003–2011," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(2), pages 401-425, November.
    19. Kaizhi Yu & Yun Zhang & Hong Zou & Chenchen Wang, 2019. "Absolute Income, Income Inequality and the Subjective Well-Being of Migrant Workers in China: Toward an Understanding of the Relationship and Its Psychological Mechanisms," IJERPH, MDPI, vol. 16(14), pages 1-27, July.
    20. Andrew E. Clark & Sarah Flèche & Claudia Senik, 2012. "The Great Happiness Moderation," SOEPpapers on Multidisciplinary Panel Data Research 468, DIW Berlin, The German Socio-Economic Panel (SOEP).

    More about this item

    Keywords

    subjective well-being; Easterlin paradox; relative income; national income;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:201843. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iwkiede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.