Working Paper: CEPR ID: DP8409
Authors: Jrn Steffen Pischke
Abstract: There is a well-established positive correlation between life-satisfaction measures and income in individual level cross-sectional data. This paper attempts to provide some evidence on whether this correlation reflects causality running from money to happiness. I use industry wage differentials as instruments for income. This is based on the idea that at least part of these differentials are due to rents, and part of the pattern of industry affiliations of individuals is random. To probe the validity of these assumptions, I compare estimates for life satisfaction with those for job satisfaction, present fixed effects estimates, and present estimates for married women using their husbands' industry as the instrument. All these specifications paint a fairly uniform picture across three different data sets. IV estimates are similar to the OLS estimates suggesting that most of the association of income and well-being is causal.
Keywords: Life satisfaction; Well-being
JEL Codes: D1; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher wages in certain industries (J39) | higher family incomes (J12) |
| higher family incomes (J12) | increased life satisfaction (I31) |
| higher wages in certain industries (J39) | increased life satisfaction (I31) |
| industry wage differentials (J31) | higher family incomes (J12) |
| industry wage differentials (J31) | increased life satisfaction (I31) |