Researchers reveal large causal impact of income on happiness with twins data

What is it about?

One fundamental and controversial issue in economic, psychological, and social sciences is whether and how much income truly brings happiness. Although individual income is generally positively associated with happiness within a country, few studies answer whether such an association reflects a causal effect of individual income on happiness and identify the size of such an effect. This study is unique in its use of twin data to investigate the income–happiness relationship, and is one of the few studies to address both omitted variable bias and measurement error bias. Additionally, it is likely the first time in the literature studying the effect of income on happiness to use sibling-reported income as an instrument to address measurement errors. It finds that income has a much larger effect than previous estimates: doubling income boosts the four-scale emotional well-being (measured by the frequency of feeling happy) by 0.26 scales or 0.37 standard deviations, or the likelihood of “often feeling happy” by 16.3 percentage points. Preliminary heterogeneity analyses suggest that income matters most for males and the middle-aged. The heterogeneous results regarding gender may reflect the different gender roles in Chinese society: males tend to bear more of the financial responsibilities, while females bear more of the family responsibilities. The heterogeneous results in age groups are consistent with the well-established pattern in the literature that those in middle-age are least happy, probably due to their heaviest family and financial burdens, for which a decent income is crucial to manage daily life and maintain happiness.

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Photo by micheile henderson on Unsplash

Photo by micheile henderson on Unsplash

Why is it important?

These results emphasize the importance of income maintenance for individuals’ well-being, which holds significant implications for rapidly developing countries and transitional societies and sheds light on social welfare policies and social security systems. Methodologically, it also highlights the importance of accounting for various biases when studying the relationship between socioeconomic status and subjective well-being.

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