Advanced Search
MyIDEAS: Login to save this paper or follow this series

Happiness and the Persistence of Income Shocks

Contents:

Author Info

  • Bayer, Christian

    ()
    (University of Bonn)

  • Juessen, Falko

    ()
    (University of Wuppertal)

Abstract

We reassess the empirical effect of income and employment on self-reported well-being. Our analysis makes use of a novel two-step estimation procedure that allows applying instrumental variable regressions with ordinal observable data. As suggested by the theory of incomplete markets, we differentiate between the effects of persistent and transitory income shocks. In line with this theory, we find that persistent shocks have a significant impact on happiness while transitory shocks do not. This has consequences also for inference about the happiness effect of employment. We find that employment per se is rather associated with a decline in happiness.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp6771.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6771.

as in new window
Length: 23 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6771

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: incomplete markets; happiness; income persistence;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(424), pages 648-59, May.
  2. Dehejia, Rajeev & DeLeire, Thomas & Luttmer, Erzo F. P., 2005. "Insuring Consumption and Happiness through Religious Organizations," Working Paper Series rwp05-047, Harvard University, John F. Kennedy School of Government.
  3. Andrew Clark & Yannis Georgellis & Peter Sanfey, 1999. "Scarring: The Psychological Impact of Past Unemployment," Studies in Economics, Department of Economics, University of Kent 9903, Department of Economics, University of Kent.
  4. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers, Federal Reserve Bank of Minneapolis 502, Federal Reserve Bank of Minneapolis.
  5. Andrew E. Clark, 2003. "Unemployment as a Social Norm: Psychological Evidence from Panel Data," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 289-322, April.
  6. Bernard M. S. van Praag & Barbara E. Baarsma, 2005. "Using Happiness Surveys to Value Intangibles: The Case of Airport Noise," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(500), pages 224-246, 01.
  7. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers, Institute for Fiscal Studies W97/15, Institute for Fiscal Studies.
  8. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Investigating the Patterns and Determinants of Life Satisfaction in Germany Following Reunification," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
  9. Bayer, Christian & Juessen, Falko, 2012. "The life-cycle and the business-cycle of wage risk — Cross-country comparisons," Economics Letters, Elsevier, Elsevier, vol. 117(3), pages 831-833.
  10. Caporale, Guglielmo Maria & Georgellis, Yannis & Tsitsianis, Nicholas & Yin, Ya Ping, 2009. "Income and happiness across Europe: Do reference values matter?," Journal of Economic Psychology, Elsevier, Elsevier, vol. 30(1), pages 42-51, February.
  11. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  12. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  13. 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.
  14. Orsolya Lelkes, 2002. "Tasting Freedom: Happiness, religion and economic transition," CASE Papers case59, Centre for Analysis of Social Exclusion, LSE.
  15. Kenneth A. Couch & Dana W. Placzek, 2010. "Earnings Losses of Displaced Workers Revisited," American Economic Review, American Economic Association, American Economic Association, vol. 100(1), pages 572-89, March.
  16. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(5-6), pages 953-969.
  17. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
  18. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198288244, October.
  19. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 1887-1921, December.
  20. Paul Frijters & Ingo Geishecker & John P. Haisken-DeNew & Michael A. Shields, 2006. "Can the Large Swings in Russian Life Satisfaction be Explained by Ups and Downs in Real Incomes?," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 108(3), pages 433-458, October.
  21. Andreas Knabe & Steffen Rätzel, 2008. "Scarring or Scaring? The Psychological Impact of Past Unemployment and Future Unemployment Risk," CESifo Working Paper Series 2457, CESifo Group Munich.
  22. Nicola Fuchs-Schündeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," Working Papers, Center for Retirement Research at Boston College wp2008-21, Center for Retirement Research, revised Dec 2008.
  23. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
  24. Paul Frijters & John P. Haisken-DeNew & Michael A. Shields, 2004. "Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification," American Economic Review, American Economic Association, American Economic Association, vol. 94(3), pages 730-740, June.
  25. Jenkins, Stephen P., 2011. "Changing Fortunes: Income Mobility and Poverty Dynamics in Britain," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199226436, October.
  26. Bayer, Christian & Juessen, Falko, 2009. "The Life-Cycle and the Business-Cycle of Wage Risk: A Cross-Country Comparison," IZA Discussion Papers 4402, Institute for the Study of Labor (IZA).
  27. Nicola Fuchs-Schundeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 1798-1828, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

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, Elsevier, vol. 105(C), pages 131-149.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp6771. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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