Discussion Paper

No. 2017-113 | December 15, 2017
Subjective well-being and income: a compromise between Easterlin paradox and its critiques

Abstract

Despite rising popularity of subjective well-being (SWB) as a proxy for utility, its relationship with income is still unresolved. Against the background of debates around the ‘Easterlin paradox’, this paper seeks a compromise between two positions: one that insists on individual relative income, and one that finds similarity between individual and aggregate levels. Proposing a model which puts the emphasis on the interaction between individual and aggregate-level factors, it argues that the effect of relative income on SWB varies across countries as a function of average income, in addition to a relatively small direct effect of the latter, in partial agreement with the two major positions. The model is tested cross-sectionally on the data from the latest wave of World Values Survey. The results from hierarchical mixed-effect models confirm the main argument. But further examination reveals that there is still unaccounted variation especially in middle-income economies.

JEL Classification:

D31, C31

Assessment

  • Downloads: 127

Links

Cite As

Rusen Yasar (2017). Subjective well-being and income: a compromise between Easterlin paradox and its critiques. Economics Discussion Papers, No 2017-113, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-113


Comments and Questions


Anonymous - Referee report 1
December 17, 2017 - 18:39

This paper contributes to a large literature on the relationship between income and happiness and in particular to multi-level analyses in that context. Its contribution is in a subtly different analysis and use of the most recent dataset. Though the conclusions are not really new, it is worth publishing.
I ...[more]

... recommend two revisions:
1. Acknowledge earlier analyses of this kind, such as Schyns 2002, and indicate the difference with this work.
You can use the Bibliography of Happiness for identifying similar analyses, in particular the subject sections Ff01 ‘Happiness and affluence in nations’ http://worlddatabaseofhappiness.eur.nl/hap_bib/src_pubs.php?mode=1&Subject=190 and Ge ‘personal ‘Income’ http://worlddatabaseofhappiness.eur.nl/hap_bib/src_pubs.php?mode=1&Subject=12

2. The use of control variables requires reconsideration. Why remove indirect effects of income, such as through education? The use of subjective health as a control variable involves the risk of over-control, since the absolute effect of good material conditions reflects about as much in health and happiness. If used at all, control variables should be entered step-wise