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  3. American Economic Journal: Macroeconomics
  4. October 2015
  5. Happiness and the Persistence of Income Shocks

Happiness and the Persistence of Income Shocks

  • Christian Bayer
  • Falko Juessen
American Economic Journal: Macroeconomics
vol. 7, no. 4, October 2015
(pp. 160-87)
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Abstract

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)

Citation

Bayer, Christian, and Falko Juessen. 2015. "Happiness and the Persistence of Income Shocks." American Economic Journal: Macroeconomics, 7 (4): 160-87. DOI: 10.1257/mac.20120163

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • D52 Incomplete Markets
  • I31 General Welfare; Well-Being
  • J22 Time Allocation and Labor Supply
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