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Happiness and the Persistence of Income Shocks

Author Info

Listed author(s):
  • 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.

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File URL: http://ftp.iza.org/dp6771.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6771.

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Length: 23 pages
Date of creation: Jul 2012
Handle: RePEc:iza:izadps:dp6771
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IZA, P.O. Box 7240, D-53072 Bonn, Germany

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Keywords: incomplete markets; happiness; income persistence;

Other versions of this item:

Find related papers by JEL classification:
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • D60 - Microeconomics - - Welfare Economics - - - General

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Cited by:

  1. Paul Dolan & Georgios Kavetsos & Christian Krekel & Dimitris Mavridis & Robert Metcalfe & Claudia Senik & Stefan Szymanski & Nicolas R. Ziebarth, 2016. "The Host with the Most? The Effects of the Olympic Games on Happiness," PSE Working Papers halshs-01349354, HAL.
  2. Bahadır Dursun & Resul Cesur, 2016. "Transforming lives: the impact of compulsory schooling on hope and happiness," Journal of Population Economics, Springer;European Society for Population Economics, vol. 29(3), pages 911-956, July.
  3. repec:hal:wpaper:halshs-01349354 is not listed on IDEAS
  4. 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.

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