Adaptation and the Easterlin Paradox in Russia

In recent years the dynamic Easterlin Paradox has been confirmed for many European countries as well as for the USA: satisfaction does not depend on real income in the long run. In this paper we test this hypothesis for Russia, in particular we test two main mechanisms of the paradox: adaptation to changes in income and social comparison effect. In order to do that we specify two ARDL-type models and use the RLMS NRU HSE dataset for estimating their parameters. It is shown that there exists only the short run association between agents’ real income and satisfaction with their financial situation even though the dynamics of these two variables was very similar in the past 20 years. Moreover, authors confirm that satisfaction with income is of autoregressive nature itself and it tends to reach and maintain some constant level in the long run. Therefore, these results indicate in favor of the adaptation mechanism and hence the presence of the Easterlin Paradox in Russia even though the social comparison effect is statistically insignificant. The positive co-movement of the aggregate variables might be explained by the massive negative shocks during the 90s which brought down the income and satisfaction. These results are most applicable in the analysis of social inequality, social tension and instability rather than of the effects of economic growth itself.