IDEAS home Printed from https://ideas.repec.org/p/ris/smuesw/2024_016.html
   My bibliography  Save this paper

Is Subjective Well-Being Insured Against Income Shocks? Evidence from 20-Year Panel Data in South Korea

Author

Listed:
  • Ahn, Jiyeon

    (Sogang University)

  • Ahn, Taehyun

    (Sogang University)

  • Kim, Seonghoon

    (Singapore Management University and IZA)

Abstract

Using 20 years of nationally representative panel data in South Korea, we estimate how life satisfaction responds to income shocks. We document that unexpected income changes significantly impact an individual’s life satisfaction, and the magnitudes depend on the persistence of income shocks. We find that permanent income shocks substantially penetrate life satisfaction, while transitory income shocks have minimal impact. We also find that life satisfaction regarding external factors such as family income and leisure activities is more sensitive to income shocks than life satisfaction related to social relationships. Our findings imply that it is critical for the government to address persistent income losses in the economy (e.g., long-term unemployment driven by skill-biased technological changes or work-limiting disability) as a means to improving social welfare.

Suggested Citation

  • Ahn, Jiyeon & Ahn, Taehyun & Kim, Seonghoon, 2024. "Is Subjective Well-Being Insured Against Income Shocks? Evidence from 20-Year Panel Data in South Korea," Economics and Statistics Working Papers 16-2024, Singapore Management University, School of Economics.
    • Handle: RePEc:ris:smuesw:2024_016
    as

    Download full text from publisher

    File URL: https://ink.library.smu.edu.sg/soe_research/2797/
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard Layard, 2012. "Big ideas: wellbeing and public policy," CentrePiece - The magazine for economic performance 355, Centre for Economic Performance, LSE.
    2. David Card & Jochen Kluve & Andrea Weber, 2010. "Active Labour Market Policy Evaluations: A Meta-Analysis," Economic Journal, Royal Economic Society, vol. 120(548), pages 452-477, November.
    3. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
    4. Bruno Crépon & Gerard J. van den Berg, 2016. "Active Labor Market Policies," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 521-546, October.
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    6. Erik Lindqvist & Robert Östling & David Cesarini, 2020. "Long-Run Effects of Lottery Wealth on Psychological Well-Being," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(6), pages 2703-2726.
    7. Kenji Suzuki, 2009. "Are They Frigid to the Economic Development? Reconsideration of the Economic Effect on Subjective Well-being in Japan," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 92(1), pages 81-89, May.
    8. Orazio Attanasio & Luigi Pistaferri, 2014. "Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure," American Economic Review, American Economic Association, vol. 104(5), pages 122-126, May.
    9. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    10. Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-481, March.
    11. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    12. Andrew J. Oswald & Eugenio Proto & Daniel Sgroi, 2015. "Happiness and Productivity," Journal of Labor Economics, University of Chicago Press, vol. 33(4), pages 789-822.
    13. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    14. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
    15. Kim, Seonghoon & Koh, Kanghyock, 2018. "Does Health Insurance Make People Happier? Evidence from Massachusetts' Healthcare Reform," IZA Discussion Papers 11879, Institute of Labor Economics (IZA).
    16. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
    17. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, July.
    18. Cai, Shu & Park, Albert, 2016. "Permanent income and subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 298-319.
    19. Taehyun Ahn & Chung Gu Chee & Seonghoon Kim, 2021. "The Evolution of Income Risk and Consumption Insurance in South Korea over the Last Two Decades," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 328-351, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    2. Senik, Claudia, 2009. "Direct evidence on income comparisons and their welfare effects," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 408-424, October.
    3. Christian Bayer & Falko Juessen, 2015. "Happiness and the Persistence of Income Shocks," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(4), pages 160-187, October.
    4. Diriwaechter, Patric & Shvartsman, Elena, 2018. "The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 116-140.
    5. Vinod Mishra & Ingrid Nielsen & Russell Smyth, 2010. "Relative Income, Temporary Life Shocks and Subjective Wellbeing in the Long-run," Monash Economics Working Papers 51-10, Monash University, Department of Economics.
    6. Cai, Shu & Park, Albert, 2016. "Permanent income and subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 130(C), pages 298-319.
    7. Jérémy Celse, 2017. "An Experimental Investigation of the Impact of Absolute and Relative Inequalities on Individual Satisfaction," Journal of Happiness Studies, Springer, vol. 18(4), pages 939-958, August.
    8. Vendrik, Maarten C.M. & Woltjer, Geert B., 2007. "Happiness and loss aversion: Is utility concave or convex in relative income?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1423-1448, August.
    9. Claudia Senik, 2008. "Direct evidence on income comparisons and their welfare effects," Working Papers halshs-00588023, HAL.
    10. Fluhrer, Svenja & Kraehnert, Kati, 2022. "Sitting in the same boat: Subjective well-being and social comparison after an extreme weather event," Ecological Economics, Elsevier, vol. 195(C).
    11. Carter, Steven & McBride, Michael, 2013. "Experienced utility versus decision utility: Putting the ‘S’ in satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 42(C), pages 13-23.
    12. Stefano Bartolini & Francesco Sarracino, 2014. "It's not the economy, stupid! How social capital and GDP relate to happiness over time," Papers 1411.2138, arXiv.org.
    13. Marco Cozzi & Qiushan Li, 2024. "Do wealth shocks matter for the life satisfaction of the elderly? Evidence from the health and retirement study," Economics Bulletin, AccessEcon, vol. 44(1), pages 88-98.
    14. Ingebjørg Kristoffersen, 2010. "The Metrics of Subjective Wellbeing: Cardinality, Neutrality and Additivity," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 98-123, March.
    15. Welsch, Heinz & Kühling, Jan, 2015. "Income comparison, income formation, and subjective well-being: New evidence on envy versus signaling," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 21-31.
    16. Christopher Mackie & Conal Smith, 2015. "Conceptualizing Subjective Well-Being And Its Many Dimensions – Implications For Data Collection In Official Statistics And For Policy Relevance," Statistics in Transition New Series, Polish Statistical Association, vol. 16(3), pages 335-372, September.
    17. Dickerson, Andy & Hole, Arne Risa & Munford, Luke A., 2014. "The relationship between well-being and commuting revisited: Does the choice of methodology matter?," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 321-329.
    18. Jan-Emmanuel De Neve & George Ward & Femke De Keulenaer & Bert Van Landeghem & Georgios Kavetsos & Michael I. Norton, 2018. "The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 362-375, May.
    19. Ólafsdóttir, Thorhildur & Ásgeirsdóttir, Tinna Laufey & Norton, Edward C., 2020. "Valuing pain using the subjective well-being method," Economics & Human Biology, Elsevier, vol. 37(C).
    20. Nguyen, Ha & Duncan, Alan, 2015. "Macroeconomic fluctuations in home countries and immigrants’ well-being: New evidence from Down Under," MPRA Paper 69593, University Library of Munich, Germany, revised Feb 2016.

    More about this item

    Keywords

    life Satisfaction; Insurance; Income shocks; KLIPS;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D60 - Microeconomics - - Welfare Economics - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:smuesw:2024_016. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cheong Pei Qi The email address of this maintainer does not seem to be valid anymore. Please ask Cheong Pei Qi to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/sesmusg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.