American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Happiness and the Persistence of Income Shocks
American Economic Journal: Macroeconomics
vol. 7,
no. 4, October 2015
(pp. 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)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.20120163Additional 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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