Abstract
This paper analyzes how people’s subjective well-being adapts to income poverty in Switzerland and Germany and presents two empirical findings. First, financial satisfaction (FS) does not adapt in either country. However, life satisfaction fully adapts in Switzerland but not in Germany. Second, people in income poverty have income lower than their reference income. In the long run, those who remain in income poverty are trapped in the situation of insufficient income. Therefore, FS has limited, if any, adaptation.
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Data Availability
This study was conducted using the data collected by the Swiss Household Panel (SHP), which is based at the Swiss Centre of Expertise in the Social Sciences FORS. The project is supported by the Swiss National Science Foundation. The second dataset, German Socio-Economic Panel Study (SOEP), was made available by the German Institute for Economic Research (DIW), Berlin. The data can be accessed by agreeing to confidential conditions and restrictions with the institutions.
Notes
Clark, D’Ambrosio, and Ghislandi (2016) also consider satisfaction with income but relegate the findings to a footnote (P595).
The following theories/models do not compare stimuli to a reference point: opponent-process theory, dynamic equilibrium, set point theory and its revision, and SWB homeostasis theory.
For summary of income and MRI, observations with monthly household income or minimum required income larger than 100,000 are also excluded as outliers (27 observations). This exclusion has negligible effects on average except greatly reducing the standard errors of those incomes.
The 1997 and 2018 MRI values are imputed based on a linear combination of “somewhat inadequate income” and “barely adequate income” using the method described below. First, the MRI is regressed on these two types of income based on the 2007 survey, for which all variables are available. Second, the 1997 and 2018 MRI values are predicted. “Somewhat inadequate income" (“barely adequate income”) is derived from the following question: What do you consider to be a somewhat inadequate income (barely adequate income) in relation to your personal living conditions and living standards? Intuitively, the MRI ranges between these two income levels. The result is consistent with intuition. The empirical results of this paper remain similar when the imputed 1997 and 2018 data are excluded.
Since MRI is available for limited years, the income and MRI are derived from observations with both variables to enable a direct comparison. Moreover, outliers with income or MRI above 50,000 are excluded. This exclusion has negligible effects on mean value except greatly reducing the standard errors.
https://www.oecdbetterlifeindex.org/topics/life-satisfaction/, accessed on 11/21/2021.
According to the World Bank data in https://data.worldbank.org/indicator/ny.gdp.pcap.cd?most_recent_value_desc=true, accessed on Oct 28, 2019.
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Acknowledgements
I am indebted to Neel Rao for his helpful advice. I thank Alex Anas, Jinquan Gong, and Peter Morgan for their comments.
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Luo, J. Is Happiness Adaptation to Poverty Limited? The Role of Reference Income. J Happiness Stud 23, 2491–2516 (2022). https://doi.org/10.1007/s10902-022-00508-3
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DOI: https://doi.org/10.1007/s10902-022-00508-3