Abstract
Increasing evidence from the empirical economic and psychological literature suggests that positive and negative well-being are more than opposite ends of the same phenomenon. Two separate measures of the dependent variable may therefore be needed when analyzing the determinants of subjective well-being. We investigate asymmetries in the effect of income on subjective well-being with a single-item measure of general life satisfaction. Using data from the German Socio-Economic Panel 1984–2004, and a flexible multiple-index ordered probit panel data model with varying thresholds, we find that income has only a minor effect on high satisfaction but significantly reduces dissatisfaction.
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Notes
The question we actually use is a response to “How satisfied are you with your life, all things considered?” on an 11-point numerical scale, where “0” is labeled “completely dissatisfied” and “10” is labeled “completely satisfied”.
For the ease of exposition, we set up the model in terms of cumulative conditional probabilities. Like the standard ordered probit, the generalized model may also be motivated in terms of a latent variable and a threshold crossing mechanism generating the ordinal response variable. We refer to Winkelmann and Boes (2006, Chap. 6) for a detailed outline of the underlying assumptions and identification issues in this framework.
A straightforward generalization of (3) would be to let γ vary by the satisfaction levels, i.e., replace γ by γ y . Computationally somewhat more involved would be to let α i vary by the satisfaction level. Note that only time-varying covariates are included in \(\bar{X}_i\) because otherwise θ y and γ would not be separately identified.
Stata is a registered trademark of StataCorp, College Station TX, USA. Type net search regoprob or ssc install regoprob in the command line of Stata to find out more about regoprob . See also the documentation of regoprob for details on the command syntax and the output generated by Stata.
The variables we include in the model generally have very high response rates with missing information for only a few respondents, in particular for the GLS variable, so that we do not expect significant bias in the results from dropping these observations.
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Acknowledgements
We thank four anonymous referees, conference and seminar participants in Basel, Neuchâtel, Zurich, Lausanne, Geneva, Nottingham, Bonn, and Berlin for valuable comments. This is a substantially revised version of IZA Discussion Paper No. 1175 “Income and Happiness: New Results from Generalized Threshold and Sequential Models".
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Boes, S., Winkelmann, R. The Effect of Income on General Life Satisfaction and Dissatisfaction. Soc Indic Res 95, 111–128 (2010). https://doi.org/10.1007/s11205-009-9452-7
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DOI: https://doi.org/10.1007/s11205-009-9452-7