فقیر، غنی و خوشحال: بررسی ارتباط بین درآمد و رفاه ذهنی

The relationship between income and subjective well-being (SWB) is investigated using eight waves of the British Household Panel Survey and an estimation strategy that allows us to relax some assumptions typically made in the literature. First, we use a random effects generalised ordered probit model to investigate whether income effects are heterogeneous across SWB categories, and, second, we discretise (absolute and relative) income variables to allow for the income effects to vary across income groups. We find that higher absolute income increases SWB but up to a certain level, while low income is significantly correlated with low scores in the SWB ladder. Our results are consistent with the Easterlin Paradox that has been reported in the literature. We find that high-income groups are less likely to belong in the highest SWB level, which could be partly explained by the fact that the relative income status (rather than the absolute one) is more important in determining (the highest level of) SWB.

A large and growing empirical literature in economics is focused on understanding the determinants of individual well-being using happiness or subjective well-being1,2 (SWB) functions (for recent reviews see Frey and Stutzer, 2002, Frey and Stutzer, 2005, Di Tella and MacCulloch, 2006 and Clark et al., 2008). Since the early stages, the relationship that attracted the attention of economists was the one between income and happiness, which also bore important policy implications. The level of consumption associated with a positive level of income is often taken as one of the main components in the utility function and measures of individual and national income have been taken as proxies for the health of individual and societal growth over time (see a critic overview of these concepts in England (1998) and for a more general and macroeconomic standpoint see Boskin, 2000 and Nordhaus, 2000). In a similar fashion we continue to address the same relationship between income and happiness by combining two different strands of the current literature. On one hand, comparison and adaptation effects are incorporated into the analysis, by including self-perceived financial situation, while controlling for absolute income (and accounting for potential problems of endogeneity). On the other hand, we explore income heterogeneity in SWB across outcome categories and income groups, to test, among other things, whether the effects typically found in the literature (i.e., slightly positive effects on happiness) are insensitive to individual's income level. The paper is structured as follows. Section 2 presents the background and previous literature, while it introduces in greater detail the contributions of the current paper. Section 3 presents the econometric methodology and Section 4 the data used in the analysis and the transformation of the variables. Section 5 presents the estimation results and Section 6 discussed them, while Section 7 concludes with a summary of the findings and thoughts for further research.

In this paper we investigate the relationship between income and happiness using a generalised ordered probit model with a specification capable of distinguishing income effects on SWB across different income groups and different SWB levels. The variety of distinctive patterns derived is a direct result of our estimation strategy and specifically, due to the transformation of income variable into income dummies and the use of a generalised model. The poor are more likely to be unhappy while the rich are more likely to be fairly happy. Absolute income buys-off unhappiness, but it does not seem to buy all levels of happiness. This can be explained by looking at relative income effects, through the inclusion of individuals’ subjective financial situation which captures ones relative income position and clearly confirms the findings of the past literature. Our findings can provide a framework for the rationalisation of the Easterlin paradox found within the UK (Blanchflower and Oswald, 2004). The paradox states that, in the long run, happiness does not follow increases in income, while when looking at a cross-section of the population, the wealthier are happier. Turning at our results, we verify absolute income explaining the first part of the paradox, while relative income the latter and highlighting the importance of relative status as a determinant of well being. Another explanation of these findings, relates to the concept of time-shift effects, where high-income individuals tend to engage in less satisfactory activities. Even though our model allows for correlation among individual (time-invariant) effects and income; the proposed explanation would run into simultaneity problems if factors that affect the loss of SWB contemporaneously affect income. Further research would be necessary focussing on these issues and including variables and instruments to control for the currently unobserved factors (e.g. social networks, job types, stress level, etc.). Furthermore, our estimator could be improved by treating individual heterogeneity as fixed effects and specifying a generalised conditional fixed effects ordered logit; however, such models require stronger statistical assumptions and require even further assumptions to provide estimates for partial effects and average partial effects (Wooldridge, 2002, p. 492), which as we see are imperative for inference. Finally, in our study we relax as many restricting assumptions as possible and it would be necessary for this type of analysis to be replicated in order to test the robustness of the findings and whether they are country specific or widely generalisable.