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Money and Happiness: Evidence from the Industry Wage Structure

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  • Jörn-Steffen Pischke

Abstract

There is a well-established positive correlation between life-satisfaction measures and income in individual level cross-sectional data. This paper attempts to provide some evidence on whether this correlation reflects causality running from money to happiness. I use industry wage differentials as instruments for income. This is based on the idea that at least part of these differentials is due to rents, and part of the pattern of industry affiliations of individuals is random. To probe the validity of these assumptions, I compare estimates for life satisfaction with those for job satisfaction, present fixed effects estimates, and present estimates for married women using their husbands' industry as the instrument. All these specifications paint a fairly uniform picture across three different data sets. IV estimates are similar to the OLS estimates suggesting that most of the association of income and well-being is causal.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1051.

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Date of creation: May 2011
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Handle: RePEc:cep:cepdps:dp1051

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Keywords: life satisfaction; well-being;

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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Money and Happiness: Evidence from the Industry Wage Structure
    by maximorossi in NEP-LTV blog on 2011-06-06 10:30:15
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Cited by:
  1. Jan-Emmanuel De Neve & Robert J. B. Goudie & Sach Mukherjee & Andrew J. Oswald & Stephen Wu, 2012. "Happiness as a Driver of Risk-Avoiding Behavior," CEP Discussion Papers, Centre for Economic Performance, LSE dp1126, Centre for Economic Performance, LSE.
  2. Christian Pfeifer, 2013. "Life satisfaction and the consumption values of partners and friends: Empirical evidence from German panel survey data," Economics Bulletin, AccessEcon, vol. 33(4), pages 3131-3142.
  3. Berlin, Martin & Kaunitz, Niklas, 2011. "Subjective Well-Being, Income and Economic Margins," Working Paper Series 12/2011, Swedish Institute for Social Research.
  4. Warn N. Lekfuangfu & Nattavudh Powdthavee & Mark Wooden, 2013. "The Marginal Income Effect of Education on Happiness: Estimating the Direct and Indirect Effects of Compulsory Schooling on Well-Being in Australia," CEP Discussion Papers, Centre for Economic Performance, LSE dp1214, Centre for Economic Performance, LSE.
  5. Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," CEP Discussion Papers, Centre for Economic Performance, LSE dp1163, Centre for Economic Performance, LSE.
  6. Hans Bloemen & Elena Stancanelli, 2014. "Market hours, household work, child care, and wage rates of partners: an empirical analysis," Review of Economics of the Household, Springer, Springer, vol. 12(1), pages 51-81, March.
  7. Ambrey, Christopher L. & Chan, Andrew Yiu-Chung & Fleming, Christopher M., 2013. "Estimating the cost of air pollution in South East Queensland: An application of the life satisfaction non-market valuation approach," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia, Australian Agricultural and Resource Economics Society 152133, Australian Agricultural and Resource Economics Society.
  8. Powdthavee, Nattavudh & Stutzer, Alois, 2014. "Economic Approaches to Understanding Change in Happiness," IZA Discussion Papers 8131, Institute for the Study of Labor (IZA).
  9. Ambrey, Christopher L. & Fleming, Christopher M. & Chan, Andrew Yiu-Chung, 2014. "Estimating the cost of air pollution in South East Queensland: An application of the life satisfaction non-market valuation approach," Ecological Economics, Elsevier, Elsevier, vol. 97(C), pages 172-181.
  10. Vendrik, Maarten C.M., 2013. "Adaptation, anticipation and social interaction in happiness: An integrated error-correction approach," Journal of Public Economics, Elsevier, Elsevier, vol. 105(C), pages 131-149.
  11. Akay, Alpaslan & Bargain, Olivier & Dolls, Mathias & Neumann, Dirk & Peichl, Andreas & Siegloch, Sebastian, 2012. "Happy Taxpayers? Income Taxation and Well-Being," IZA Discussion Papers 6999, Institute for the Study of Labor (IZA).
  12. Jörn-Steffen Pischke & Hannes Schwandt, 2012. "A cautionary note on using industry affiliation to predict income," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 51508, London School of Economics and Political Science, LSE Library.
  13. Marta Lachowska, 2013. "Employment Relations and Wages: What Can We Learn from Subjective Assessments?," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 13-196, W.E. Upjohn Institute for Employment Research.

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