IDEAS home Printed from https://ideas.repec.org/a/wsi/serxxx/v61y2016i03ns0217590816400178.html
   My bibliography  Save this article

Happiness, Income And Heterogeneity

Author

Listed:
  • STEFANIE SCHURER

    (School of Economics, The University of Sydney, Australia, New South Wales 2006, Australia)

  • JONGSAY YONG

    (Melbourne Institute of Applied Economic & Social Research, The University of Melbourne, Parkville, Victoria 3010, Australia)

Abstract

This paper investigates the relationship between happiness, income, and relative income, with an emphasis on heterogeneity between individuals. We develop a random coefficient model in which people are allowed to differ in baseline happiness, and the way they transform income and leisure into utility. We hypothesize that additional dollars of income and leisure (work) hours do not necessarily increase (decrease) the utility of all individuals in the same way, and relative income positions and heterogeneity around relative income positions are important explanations for happiness. Using eight waves Australian household panel data (HILDA), we find strong evidence of heterogeneity in the income-happiness relationship, and differences in baseline happiness were partially explained by personality traits. In addition, we also find relative income positions to play an important role in explaining happiness. In some instances the marginal utility estimates of relative income positions were larger in magnitude than the marginal utility estimate of absolute income, affirming EJ Mishan’s view that relative income is an important determinant of happiness.

Suggested Citation

  • Stefanie Schurer & Jongsay Yong, 2016. "Happiness, Income And Heterogeneity," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(03), pages 1-23, June.
    • Handle: RePEc:wsi:serxxx:v:61:y:2016:i:03:n:s0217590816400178
    DOI: 10.1142/S0217590816400178
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0217590816400178
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0217590816400178?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Boyce, Christopher J. & Wood, Alex M., 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1), pages 183-191.
    2. Andrew Clark & Fabrice Etilé & Fabien Postel-Vinay & Claudia Senik & Karine Van der Straeten, 2005. "Heterogeneity in Reported Well-Being: Evidence from Twelve European Countries," Economic Journal, Royal Economic Society, vol. 115(502), pages 118-132, March.
    3. Cobb-Clark, Deborah A. & Schurer, Stefanie, 2012. "The stability of big-five personality traits," Economics Letters, Elsevier, vol. 115(1), pages 11-15.
    4. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
    5. 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.
    6. Bruce Headey & Mark Wooden, 2004. "The Effects of Wealth and Income on Subjective Well‐Being and Ill‐Being," The Economic Record, The Economic Society of Australia, vol. 80(s1), pages 24-33, September.
    7. Frey, Bruno S & Stutzer, Alois, 2000. "Happiness, Economy and Institutions," Economic Journal, Royal Economic Society, vol. 110(466), pages 918-938, October.
    8. Christopher J. Boyce & Alex M. Wood, 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Post-Print halshs-00754542, HAL.
    9. Ruut Veenhoven, 1991. "Is happiness relative?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 24(1), pages 1-34, February.
    10. Lex Borghans & Angela Lee Duckworth & James J. Heckman & Bas ter Weel, 2008. "The Economics and Psychology of Personality Traits," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
    11. Boyce, Christopher J. & Wood, Alex M., 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 183-191, April.
    12. Ng, Yew-Kwang, 1978. "Economic Growth and Social Welfare: The Need for a Complete Study of Happiness," Kyklos, Wiley Blackwell, vol. 31(4), pages 575-587.
    13. Rojas, Mariano, 2007. "Heterogeneity in the relationship between income and happiness: A conceptual-referent-theory explanation," Journal of Economic Psychology, Elsevier, vol. 28(1), pages 1-14, January.
    14. Bruno S. Frey, 2018. "Economics of Happiness," SpringerBriefs in Economics, Springer, number 978-3-319-75807-7, October.
    15. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    16. Mark Wooden & Simon Freidin & Nicole Watson, 2002. "The Household, Income and Labour Dynamics in Australia (HILDA)Survey: Wave 1," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 339-348, September.
    17. Yew‐Kwang Ng*, 1978. "Economic Growth And Social Welfare: The Need For A Complete Study Of Happiness," Kyklos, Wiley Blackwell, vol. 31(4), pages 575-587, November.
    18. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    19. Deborah A. Cobb‐Clark & Stefanie Schurer, 2013. "Two Economists' Musings on the Stability of Locus of Control," Economic Journal, Royal Economic Society, vol. 0, pages 358-400, August.
    20. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    21. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-750, December.
    22. Christopher J. Boyce & Alex M. Wood, 2011. "Personality and the marginal utility of income: Personality interacts with increases in household income to determine life satisfaction," PSE-Ecole d'économie de Paris (Postprint) halshs-00754542, HAL.
    23. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-484, July.
    24. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, July.
    25. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2099-2123, August.
    26. Mark Wooden & Nicole Watson, 2007. "The HILDA Survey and its Contribution to Economic and Social Research (So Far)," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 208-231, June.
    27. Vendrik, Maarten C.M. & Woltjer, Geert B., 2007. "Happiness and loss aversion: Is utility concave or convex in relative income?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1423-1448, August.
    28. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
    29. Ng, Yew-Kwang, 1987. "Relative-Income Effects and the Appropriate Level of Public Expenditure," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 293-300, June.
    30. Ed Diener & Ed Sandvik & Larry Seidlitz & Marissa Diener, 1993. "The relationship between income and subjective well-being: Relative or absolute?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 28(3), pages 195-223, March.
    31. Gerrit Mueller & Erik Plug, 2006. "Estimating the Effect of Personality on Male and Female Earnings," ILR Review, Cornell University, ILR School, vol. 60(1), pages 3-22, October.
    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


    Cited by:

    1. Huang, Li-Hsuan, 2019. "Well-being and volunteering: Evidence from aging societies in Asia," Social Science & Medicine, Elsevier, vol. 229(C), pages 172-180.
    2. Zhiming Cheng & Vinod Mishra & Ingrid Nielsen & Russell Smyth & Ben Zhe Wang, 2017. "Wellbeing in China," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(1), pages 1-10, May.
    3. Gustavo Ahumada & Victor Iturra & Mauricio Sarrias, 2020. "We Do Not Have the Same Tastes! Evaluating Individual Heterogeneity in the Preferences for Amenities," Journal of Happiness Studies, Springer, vol. 21(1), pages 53-74, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Proto, Eugenio & Rustichini, Aldo, 2015. "Life satisfaction, income and personality," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 17-32.
    2. Budría, Santiago & Ferrer-i-Carbonell, Ada, 2012. "Income Comparisons and Non-Cognitive Skills," IZA Discussion Papers 6419, Institute of Labor Economics (IZA).
    3. Konow, James & Earley, Joseph, 2008. "The Hedonistic Paradox: Is homo economicus happier," Journal of Public Economics, Elsevier, vol. 92(1-2), pages 1-33, February.
    4. Marcin Piekałkiewicz, 2017. "Why do economists study happiness?," The Economic and Labour Relations Review, , vol. 28(3), pages 361-377, September.
    5. Proto, Eugenio & Rustichini, Aldo, 2012. "Life Satisfaction, Household Income and Personality Traits," CAGE Online Working Paper Series 86, Competitive Advantage in the Global Economy (CAGE).
    6. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    7. Stefano Bartolini & Ennio Bilancini & Francesco Sarracino, 2013. "Predicting the Trend of Well-Being in Germany: How Much Do Comparisons, Adaptation and Sociability Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(2), pages 169-191, November.
    8. Alexandru Cojocaru, 2016. "Does Relative Deprivation Matter in Developing Countries: Evidence from Six Transition Economies," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 125(3), pages 735-756, February.
    9. Schurer, S. & Yong, J., 2012. "Personality, well-being and the marginal utility of income: What can we learn from random coefficient models?," Health, Econometrics and Data Group (HEDG) Working Papers 12/01, HEDG, c/o Department of Economics, University of York.
    10. McBride, Michael, 2010. "Money, happiness, and aspirations: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 262-276, June.
    11. Mentzakis, Emmanouil & Moro, Mirko, 2009. "The poor, the rich and the happy: Exploring the link between income and subjective well-being," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(1), pages 147-158, January.
    12. Vendrik, Maarten C.M. & Woltjer, Geert B., 2007. "Happiness and loss aversion: Is utility concave or convex in relative income?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1423-1448, August.
    13. Nikolaev, Boris, 2016. "Does other people's education make us less happy?," Economics of Education Review, Elsevier, vol. 52(C), pages 176-191.
    14. 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, vol. 30(1), pages 42-51, February.
    15. Akay, Alpaslan & Bargain, Olivier B. & Giulietti, Corrado & Robalino, Juan D. & Zimmermann, Klaus F., 2016. "Remittances and relative concerns in rural China," China Economic Review, Elsevier, vol. 37(C), pages 191-207.
    16. AMENDOLA, Adalgiso & DELL'ANNO, Roberto & PARISI, Lavinia, 2015. "Happiness, Inequality and Relative Concerns in European Countries," CELPE Discussion Papers 136, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    17. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2006. "Income and happiness: Evidence, explanations and economic implications," PSE Working Papers halshs-00590436, HAL.
    18. Boyce, Christopher J., 2010. "Understanding fixed effects in human well-being," Journal of Economic Psychology, Elsevier, vol. 31(1), pages 1-16, February.
    19. Fengyu Wu, 2020. "An Examination of the Effects of Consumption Expenditures on Life Satisfaction in Australia," Journal of Happiness Studies, Springer, vol. 21(8), pages 2735-2771, December.
    20. Corazzini, Luca & Esposito, Lucio & Majorano, Francesca, 2012. "Reign in hell or serve in heaven? A cross-country journey into the relative vs absolute perceptions of wellbeing," Journal of Economic Behavior & Organization, Elsevier, vol. 81(3), pages 715-730.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:serxxx:v:61:y:2016:i:03:n:s0217590816400178. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ser/ser.shtml .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.