We reassess the empirical effects of income and employment on
self-reported well-being. Our analysis makes use of a two-step estimation procedure that allows us to apply instrumental variable regressions with ordinal observable data. As suggested by the theory of incomplete markets, we differentiate between the effects of persistent and transitory income shocks. In line with this theory, we find that persistent shocks have a significant impact on happiness while transitory shocks do not. This also has consequences for inference about the happiness effect of employment. We find that employment per se is associated with a nonsignificant decline in happiness. (JEL D12, D52, I31, J22)
Bayer, Christian, and Falko Juessen.
"Happiness and the Persistence of Income Shocks."
American Economic Journal: Macroeconomics,
Consumer Economics: Empirical Analysis
General Welfare; Well-Being
Time Allocation and Labor Supply