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Money and Happiness: Evidence from the Industry Wage Structure

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  • Pischke, Jörn-Steffen

    () (London School of Economics)

Abstract

There is a well-established positive correlation between life-satisfaction measures and income in individual level cross-sectional data. This paper attempts to provide some evidence on whether this correlation reflects causality running from money to happiness. I use industry wage differentials as instruments for income. This is based on the idea that at least part of these differentials are due to rents, and part of the pattern of industry affiliations of individuals is random. To probe the validity of these assumptions, I compare estimates for life satisfaction with those for job satisfaction, present fixed effects estimates, and present estimates for married women using their husbands' industry as the instrument. All these specifications paint a fairly uniform picture across three different data sets. IV estimates are similar to the OLS estimates suggesting that most of the association of income and well-being is causal.

Suggested Citation

  • Pischke, Jörn-Steffen, 2011. "Money and Happiness: Evidence from the Industry Wage Structure," IZA Discussion Papers 5705, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5705
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Money and Happiness: Evidence from the Industry Wage Structure
      by maximorossi in NEP-LTV blog on 2011-06-06 15:30:15

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    Cited by:

    1. Alpaslan Akay & Olivier Bargain & Mathias Dolls & Dirk Neumann & Andreas Peichl & Sebastian Siegloch, 2012. "Happy Taxpayers? Income Taxation and Well-Being," SOEPpapers on Multidisciplinary Panel Data Research 526, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Marta Lachowska, 2013. "Employment Relations and Wages: What Can We Learn from Subjective Assessments?," Upjohn Working Papers and Journal Articles 13-196, W.E. Upjohn Institute for Employment Research.
    3. Ambrey, Christopher L. & Fleming, Christopher M., 2011. "Valuing scenic amenity using life satisfaction data," Ecological Economics, Elsevier, vol. 72(C), pages 106-115.
    4. repec:cep:sticar:case/96 is not listed on IDEAS
    5. Alpaslan Akay & Corrado Giulietti & Juan Robalino & Klaus Zimmermann, 2014. "Remittances and well-being among rural-to-urban migrants in China," Review of Economics of the Household, Springer, vol. 12(3), pages 517-546, September.
    6. Robert J. B. Goudie & Sach Mukherjee & Jan-Emmanuel De Neve & Andrew J. Oswald & Stephen Wu, 2011. "Happiness as a Driver of Risk-Avoiding Behavior," CESifo Working Paper Series 3451, CESifo Group Munich.
    7. repec:bla:jorssa:v:180:y:2017:i:3:p:793-816 is not listed on IDEAS
    8. repec:pri:indrel:dsp01cn69m419r is not listed on IDEAS
    9. Powdthavee, Nattavudh & Lekfuangfu, Warn N. & Wooden, Mark, 2013. "The Marginal Income Effect of Education on Happiness: Estimating the Direct and Indirect Effects of Compulsory Schooling on Well-Being in Australia," IZA Discussion Papers 7365, Institute for the Study of Labor (IZA).
    10. Pischke, Jörn-Steffen & Schwandt, Hannes, 2012. "A Cautionary Note on Using Industry Affiliation to Predict Income," CEPR Discussion Papers 9131, C.E.P.R. Discussion Papers.
    11. Alexander Ahammer & G. Thomas Horvath & Rudolf Winter-Ebmer, 2017. "The effect of income on mortality—new evidence for the absence of a causal link," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(3), pages 793-816, June.
    12. Lea Cassar, 2014. "Job mission as a substitute for monetary incentives: experimental evidence," ECON - Working Papers 177, Department of Economics - University of Zurich.
    13. Ambrey, Christopher L. & Fleming, Christopher M., 2014. "The causal effect of income on life satisfaction and the implications for valuing non-market goods," Economics Letters, Elsevier, vol. 123(2), pages 131-134.
    14. Boyd-Swan, Casey & Herbst, Chris M. & Ifcher, John & Zarghamee, Homa, 2016. "The earned income tax credit, mental health, and happiness," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 18-38.
    15. Christopher L Ambrey & Christopher M Fleming & Matthew Manning, 2013. "The life satisfaction approach to estimating the cost of crime: An individual's willingness-to-pay for crime reduction," Discussion Papers in Economics economics:201301, Griffith University, Department of Accounting, Finance and Economics.
    16. Abel Brodeur & Sarah Flèche, 2017. "Neighbors' Income, Public Goods and Well-Being," Working Papers 1719E, University of Ottawa, Department of Economics.
    17. Cojocaru, Alexandru, 2014. "Fairness and inequality tolerance: Evidence from the Life in Transition Survey," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 590-608.
    18. Ambrey, Christopher L. & Fleming, Christopher M. & Chan, Andrew Yiu-Chung, 2014. "Estimating the cost of air pollution in South East Queensland: An application of the life satisfaction non-market valuation approach," Ecological Economics, Elsevier, vol. 97(C), pages 172-181.
    19. Hans Bloemen & Elena Stancanelli, 2014. "Market hours, household work, child care, and wage rates of partners: an empirical analysis," Review of Economics of the Household, Springer, vol. 12(1), pages 51-81, March.
    20. Powdthavee, Nattavudh & Stutzer, Alois, 2014. "Economic Approaches to Understanding Change in Happiness," IZA Discussion Papers 8131, Institute for the Study of Labor (IZA).
    21. Christian Pfeifer, 2013. "Life satisfaction and the consumption values of partners and friends: Empirical evidence from German panel survey data," Economics Bulletin, AccessEcon, vol. 33(4), pages 3131-3142.
    22. Clingingsmith, David, 2016. "Negative emotions, income, and welfare: Causal estimates from the PSID," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 1-19.
    23. Ambrey, Christopher L. & Chan, Andrew Yiu-Chung & Fleming, Christopher M., 2013. "Estimating the cost of air pollution in South East Queensland: An application of the life satisfaction non-market valuation approach," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152133, Australian Agricultural and Resource Economics Society.
    24. Berlin, Martin & Kaunitz, Niklas, 2011. "Subjective Well-Being, Income and Economic Margins," Working Paper Series 12/2011, Stockholm University, Swedish Institute for Social Research.
    25. 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.

    More about this item

    Keywords

    Life satisfaction; well-being;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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