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


Jan-Emmanuel De Neve


University College London; London School of Economics & Political Science (LSE)

Andrew J. Oswald


University of Warwick - Department of Economics; Institute for the Study of Labor (IZA)

October 29, 2012

Proceedings of the National Academy of Sciences (PNAS), Forthcoming

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 well-being. 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.

Number of Pages in PDF File: 28

Keywords: income, life satisfaction, positive affect

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Date posted: October 30, 2012  

Suggested Citation

De Neve, Jan-Emmanuel and Oswald, Andrew J., Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects (October 29, 2012). Proceedings of the National Academy of Sciences (PNAS), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2168293

Contact Information

Jan-Emmanuel De Neve (Contact Author)
University College London ( email )
29/30 Tavistock Square
London, WC1H 9QU
United Kingdom
London School of Economics & Political Science (LSE) ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
HOME PAGE: http://personal.lse.ac.uk/deneve/
Andrew J. Oswald
University of Warwick - Department of Economics ( email )
Coventry CV4 7AL
United Kingdom
523510 (Phone)
Institute for the Study of Labor (IZA)
Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany
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