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Income, happiness, and the disutility of labor

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  • Knabe, Andreas
  • Rätzel, Steffen

Abstract

We reexamine the claim that the effect of income on subjective well-being suffers from a systematic downward bias if one ignores that higher income is typically associated with more work effort. We analyze this claim using German panel data, controlling for individual unobserved heterogeneity, and specifying the impact of working hours in a non-monotonic form. Our results suggest that the impact of working hours on happiness is rather small and exhibits an inverse U-shape. We do not find evidence that leaving working hours out of the analysis leads to an underestimation of the income effect.

Suggested Citation

  • Knabe, Andreas & Rätzel, Steffen, 2009. "Income, happiness, and the disutility of labor," Discussion Papers 2009/12, Free University Berlin, School of Business & Economics.
    • Handle: RePEc:zbw:fubsbe:200912
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    References listed on IDEAS

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    1. 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.
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    3. repec:pri:cepsud:125krueger is not listed on IDEAS
    4. Bruno S. Frey, 2018. "Economics of Happiness," SpringerBriefs in Economics, Springer, number 978-3-319-75807-7, June.
    5. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    6. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
    7. repec:dgr:kubcen:200769 is not listed on IDEAS
    8. Pouwels, Babette & Siegers, Jacques & Vlasblom, Jan Dirk, 2008. "Income, working hours, and happiness," Economics Letters, Elsevier, vol. 99(1), pages 72-74, April.
    9. 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.
    10. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur A. Stone, 2006. "Would You Be Happier If You Were Richer? A Focusing Illusion," Working Papers 77, Princeton University, Department of Economics, Center for Economic Policy Studies..
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    Citations

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    Cited by:

    1. Homann, Malte & Jensen, Uwe, 2013. "Does better education cause higher income?," HWWI Research Papers 145, Hamburg Institute of International Economics (HWWI).
    2. Akay, Alpaslan & Bargain, Olivier B. & Jara, H. Xavier, 2017. "Back to Bentham, Should We? Large-Scale Comparison of Experienced versus Decision Utility," GLO Discussion Paper Series 52, Global Labor Organization (GLO).
    3. Martin Schröder, 2020. "Men Lose Life Satisfaction with Fewer Hours in Employment: Mothers Do Not Profit from Longer Employment—Evidence from Eight Panels," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 152(1), pages 317-334, November.
    4. Qinglong Shao, 2022. "Exploring the promoting effect of working time reduction on life satisfaction using Germany as a case study," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-8, December.
    5. Peter H van Der Meer & Rudi Wielers, 2011. "What makes workers happy?," Post-Print hal-00734530, HAL.
    6. Akay, Alpaslan & Bargain, Olivier & Jara Tamayo, H. Xavier, 2023. "Experienced versus decision utility: large-scale comparison for income-leisure preferences," LSE Research Online Documents on Economics 117746, London School of Economics and Political Science, LSE Library.
    7. Gerritsen, Aart, 2016. "Optimal taxation when people do not maximize well-being," Journal of Public Economics, Elsevier, vol. 144(C), pages 122-139.
    8. Wolfgang Maennig & Markus Wilhelm, 2012. "Becoming (un)employed and life satisfaction: asymmetric effects and potential omitted variable bias in empirical happiness studies," Applied Economics Letters, Taylor & Francis Journals, vol. 19(17), pages 1719-1722.
    9. Robert Rudolf, 2014. "Work Shorter, Be Happier? Longitudinal Evidence from the Korean Five-Day Working Policy," Journal of Happiness Studies, Springer, vol. 15(5), pages 1139-1163, October.

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    More about this item

    Keywords

    Happiness; life satisfaction; income; disutility of labor;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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