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Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects

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  • Jan-Emmanuel De Neve
  • Andrew J. Oswald

Abstract

The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person's well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study's results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1176.

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Date of creation: Nov 2012
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Handle: RePEc:cep:cepdps:dp1176

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Income; life satisfaction; positive affect;

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  1. Oswald, Andrew J. & Proto, Eugenio & Sgroi, Daniel, 2008. "Happiness and Productivity," The Warwick Economics Research Paper Series (TWERPS) 882, University of Warwick, Department of Economics.
  2. Richard Layard & Guy Mayraz & Stephen J. Nickell, 2007. "The Marginal Utility of Income," SOEPpapers on Multidisciplinary Panel Data Research 50, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Sonja Lyubomirsky & Chris Tkach & M. DiMatteo, 2006. "What are the Differences between Happiness and Self-Esteem," Social Indicators Research, Springer, vol. 78(3), pages 363-404, 09.
  4. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  5. Glen R. Waddell, 2006. "Labor-Market Consequences of Poor Attitude and Low Self-Esteem in Youth," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 69-97, January.
  6. Gardner, Jonathan & Oswald, Andrew J., 2007. "Money and mental wellbeing: A longitudinal study of medium-sized lottery wins," Journal of Health Economics, Elsevier, vol. 26(1), pages 49-60, January.
  7. Graham, Carol & Eggers, Andrew & Sukhtankar, Sandip, 2004. "Does happiness pay?: An exploration based on panel data from Russia," Journal of Economic Behavior & Organization, Elsevier, vol. 55(3), pages 319-342, November.
  8. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
  9. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  10. Ed Diener & Carol Nickerson & Richard Lucas & Ed Sandvik, 2002. "Dispositional Affect and Job Outcomes," Social Indicators Research, Springer, vol. 59(3), pages 229-259, September.
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  1. Marriage & wages
    by chris dillow in Stumbling and Mumbling on 2013-03-25 14:22:12
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Cited by:
  1. Vendrik, Maarten C.M., 2013. "Adaptation, anticipation and social interaction in happiness: An integrated error-correction approach," Journal of Public Economics, Elsevier, vol. 105(C), pages 131-149.
  2. Bruno Frey & Jana Gallus & Lasse Steiner, 2014. "Open issues in happiness research," International Review of Economics, Springer, vol. 61(2), pages 115-125, June.
  3. Krause, Annabelle, 2012. "Don't Worry, Be Happy? Happiness and Reemployment," IZA Discussion Papers 7107, Institute for the Study of Labor (IZA).
  4. Grimani, Katerina, 2014. "Labor earnings and Psychological well-being: An Empirical Analysis," MPRA Paper 57098, University Library of Munich, Germany.
  5. Hudson, Eibhlin, 2013. "Does relative material wealth matter for child and adolescent life satisfaction?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 46(C), pages 38-47.
  6. Krause, Annabelle, 2013. "Don’t worry, be happy? Happiness and reemployment," Journal of Economic Behavior & Organization, Elsevier, vol. 96(C), pages 1-20.

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