Does Job-Satisfaction Cause Life-Satisfaction? New Evidence Using Lewbel Methodology

While studies on the direction of causality between job satisfaction and life satisfaction are abundant, their evidence is still inconclusive primarily because of the difficulty in finding suitable external instruments. We have constructed internal instruments, using the Lewbel methodology, which satisfy the desirable properties. It is important to determine the direction of causality since the implications for public and labour policies are different depending on the direction. The second contribution of this study is to examine the link between life satisfaction and the twelve aspects of job satisfaction in order to explore whether extrinsic (pay, benefits, and other work conditions) or intrinsic (kind of work) job satisfaction matters. For this purpose, a survey was conducted in Wah Cantt, Pakistan using a sample of 300 respondents. The study findings reveal that there is a bidirectional causality between life and job satisfaction. However, the effect of job satisfaction on life satisfaction is stronger than the effect of life satisfaction on job satisfaction. Mixed results related to causality between twelve aspects of job satisfaction and life satisfaction were found. The paper ends with important policy implications.