Download this Paper Open PDF in Browser

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

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

28 Pages Posted: 30 Oct 2012  

Jan‐Emmanuel De Neve

University of Oxford

Andrew J. Oswald

University of Warwick - Department of Economics; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: October 29, 2012

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.

Keywords: income, life satisfaction, positive affect

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: https://ssrn.com/abstract=2168293

Jan-Emmanuel De Neve (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Andrew J. Oswald

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
523510 (Phone)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Paper statistics

Downloads
111
Rank
175,389
Abstract Views
1,043