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Are Americans Really Less Happy With Their Incomes?

  • Arie Kapteyn

    ()

  • James P. Smith

    ()

  • Arthur van Soest

    ()

Recent economic research on international comparisons of subjective well-being suffers from several important biases due to the potential incomparability of response scales within and across countries. In this paper the authors concentrate on self-reported satisfaction with income in two countries: The Netherlands and the U.S. The comparability problem is addressed by using anchoring vignettes. They find that in the raw data, Americans appear decidedly less satisfied with their income than the Dutch. It turns out however that after response scale adjustment based on vignettes the distribution of satisfaction in the two countries is essentially identical. In addition, they find that the within-country cross-sectional effect of income on satisfaction- a key parameter in the recent debate in the economic literature- is significantly under-estimated especially in the US- when differences in response scales are not taken into account.

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Paper provided by RAND Corporation in its series Working Papers with number 858.

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Length: 38 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:ran:wpaper:858
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  1. Ada Ferrer-i-Carbonell & Bernard M. S. van Praag, 2001. "The Subjective Costs of Health Losses Due to Chronic Diseases: An Alternative Model for Monetary Appraisal," Discussion Papers of DIW Berlin 262, DIW Berlin, German Institute for Economic Research.
  2. Betsey Stevenson & Justin Wolfers, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," CESifo Working Paper Series 2394, CESifo Group Munich.
  3. Kristensen, Nicolai & Johansson, Edvard, 2008. "New evidence on cross-country differences in job satisfaction using anchoring vignettes," Labour Economics, Elsevier, vol. 15(1), pages 96-117, February.
  4. Stanovnik, Tine, 1992. "Perception of poverty and income satisfaction : An empirical analysis of Slovene households," Journal of Economic Psychology, Elsevier, vol. 13(1), pages 57-69, March.
  5. Arthur Van Soest & Liam Delaney & Colm Harmon & Arie Kapteyn & James P. Smith, 2007. "Validating the Use of Vignettes for Subjective Threshold Scales," Working Papers 200714, Geary Institute, University College Dublin.
  6. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  7. Nigel Rice & Silvana Robone & Peter Smith, 2009. "Analysis of the Validity of the Vignette Approach to Correct for Heterogeneity in Reporting Health System Responsiveness," Health, Econometrics and Data Group (HEDG) Working Papers 09/28, HEDG, c/o Department of Economics, University of York.
  8. Eric Bonsang & Arthur Soest, 2012. "Satisfaction with Job and Income Among Older Individuals Across European Countries," Social Indicators Research- An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 105(2), pages 227-254, January.
  9. Di Tella, Rafael & Alesina, Alberto & MacCulloch, Robert, 2004. "Inequality and Happiness: Are Europeans and Americans Different?," Scholarly Articles 4553007, Harvard University Department of Economics.
  10. van de Stadt, Huib & Kapteyn, Arie & van de Geer, Sara, 1985. "The Relativity of Utility: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 179-87, May.
  11. Bernard M.S. van Praag & P. Frijters & A. Ferrer-i-Carbonell, 2002. "The Anatomy of Subjective Well-being," Tinbergen Institute Discussion Papers 02-022/3, Tinbergen Institute.
  12. 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.
  13. Teresa Bago d’Uva & Eddy Van Doorslaer & Maarten Lindeboom & Owen O’Donnell & Somnath Chatterji, 2006. "Does reporting heterogeneity bias the measurement of health disparities?," Health, Econometrics and Data Group (HEDG) Working Papers 06/03, HEDG, c/o Department of Economics, University of York.
  14. Arie Kapteyn & James P. Smith & Arthur van Soest, 2007. "Vignettes and Self-Reports of Work Disability in the United States and the Netherlands," American Economic Review, American Economic Association, vol. 97(1), pages 461-473, March.
  15. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  16. Bernard M. S. van Praag & Nico L. van der Sar, 1988. "Household Cost Functions and Equivalence Scales," Journal of Human Resources, University of Wisconsin Press, vol. 23(2), pages 193-210.
  17. Peggy Schyns, 2002. "Wealth Of Nations, Individual Income andLife Satisfaction in 42 Countries:A Multilevel Approach," Social Indicators Research- An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 60(1), pages 5-40, December.
  18. Johannes Schwarze, 2003. "Using Panel Data on Income Satisfaction to Estimate Equivalence Scale Elasticity," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 49(3), pages 359-372, 09.
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