Subjective well-being and adaptation. The case of Uruguay

We assess the recent evolution of the quality of life in Uruguay, analysing whether current subjective well-being levels are conditioned by the objective well-being trajectory of each individual. We explore subjective well-being in three domains: life, economic situation and housing satisfaction. Although adaptation has been addressed in the empirical literature for developed countries, there is scarce evidence for developing countries due to the lack of suitable panel datasets. In this article, we provide an econometric test of the adaptation hypothesis based on longitudinal data from Uruguay for the years 2004, 2006 and 2011/12 (Estudio Longitudinal de Bienestar en Uruguay). Our main findings show that present levels of life, economic and housing satisfaction are each positively correlated with the corresponding contemporary and lagged objective variable of interest. Thus, we reject the adaptation hypothesis in all the dimensions considered. We also explore the role of social interactions in the three subjective well-being dimensions. Average objective well-being of the reference group (either income or crowding) is not associated with individual subjective well-being levels. However, life satisfaction is positively correlated with the average subjective well-being of the reference group.