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Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects

  • De Neve, Jan-Emmanuel

    ()

    (University College London)

  • Oswald, Andrew J.

    ()

    (University of Warwick)

The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person's well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study's results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7033.

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Length: 30 pages
Date of creation: Nov 2012
Date of revision:
Publication status: published in: Proceedings of the National Academy of Sciences, 2012, 109 (49), 19953-19958
Handle: RePEc:iza:izadps:dp7033
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  1. Ed Diener & Carol Nickerson & Richard Lucas & Ed Sandvik, 2002. "Dispositional Affect and Job Outcomes," Social Indicators Research, Springer, vol. 59(3), pages 229-259, September.
  2. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  3. Oswald, Andrew J. & Proto, Eugenio & Sgroi, Daniel, 2009. "Happiness and Productivity," IZA Discussion Papers 4645, Institute for the Study of Labor (IZA).
  4. Cahit Guven, 2008. "Reversing the Question. Does Happiness Affect Consumption and Savings Behavior?," Economics Series 2008_20, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  5. Sonja Lyubomirsky & Chris Tkach & M. DiMatteo, 2006. "What are the Differences between Happiness and Self-Esteem," Social Indicators Research, Springer, vol. 78(3), pages 363-404, 09.
  6. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing : A Longitudinal Study of Medium-Sized Lottery Wins," The Warwick Economics Research Paper Series (TWERPS) 754, University of Warwick, Department of Economics.
  7. Graham, Carol & Eggers, Andrew & Sukhtankar, Sandip, 2004. "Does happiness pay?: An exploration based on panel data from Russia," Journal of Economic Behavior & Organization, Elsevier, vol. 55(3), pages 319-342, November.
  8. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  9. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  10. Richard Layard & Guy Mayraz & Stephen Nickell, 2007. "The Marginal Utility of Income," CEP Discussion Papers dp0784, Centre for Economic Performance, LSE.
  11. Glen R. Waddell, 2006. "Labor-Market Consequences of Poor Attitude and Low Self-Esteem in Youth," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 69-97, January.
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