Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects

Jan-Emmanuel De Neve and Andrew Oswald

No 7033, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person's well-being is measured; we exploit the availability of sibling clusters to introduce family fixed-effects; we account for the human capacity to imagine later socio-economic outcomes and to anticipate the resulting feelings in current wellbeing. The study's results are robust to the inclusion of controls such as education, IQ, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel-Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.

Keywords: income; life satisfaction; positive affect (search for similar items in EconPapers)
JEL-codes: I13 I31 J31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2012-11
New Economics Papers: this item is included in nep-evo and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (112)

Published - published in: Proceedings of the National Academy of Sciences, 2012, 109 (49), 19953-19958

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Related works:
Working Paper: Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects (2012)
Working Paper: Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects (2012)
Working Paper: Estimating the influence of life satisfaction and positive affect on later income using sibling fixed-effects (2012)
Working Paper: Estimating the influence of life satisfaction and positive affect on later income using sibling fixed-effects (2012)
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