Happiness and the Persistence of Income Shocks

Christian Bayer and Falko Juessen

American Economic Journal: Macroeconomics, 2015, vol. 7, issue 4, 160-87

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)

JEL-codes: D12 D52 I31 J22 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mac.20120163
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Citations: View citations in EconPapers (31)

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Related works:
Working Paper: Happiness and the Persistence of Income Shocks (2013)
Working Paper: Happiness and the Persistence of Income Shocks (2012)
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