Income and Subjective Well-Being: How Important is the Methodology?

Hajdu, Tamás and Hajdu, Gábor (2014) Income and Subjective Well-Being: How Important is the Methodology? Hungarian Statistical Review, 91 (SN18). pp. 110-128. ISSN 0039-0690

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Abstract

The study examines the association between subjective well-being and income, using data of 3 600 individuals from the TÁRKI Household Monitor for the year 2007. To explore this relationship, most of the relevant empirical papers use either ordinary least squares (OLS) regression or ordered probit model, but the authors follow different approaches. Comparing the results of OLS regression with quantile regression and the ordered probit model with a generalized ordered probit model, they show that more flexible techniques provide a more complete picture of the income-satisfaction relationship. According to OLS regression, income has a positive impact on satisfaction, but the quantile regression models show that this association is weaker at the upper end and stronger at the lower end of the conditional distribution of well-being. The standard ordered probit model predicts a significant positive effect for the highest satisfaction category, whereas the generalized model finds that income does not affect the probability of this highest response. In addition, the generalized ordered probit model shows a more negative effect on the lower response categories of satisfaction than the standard ordered probit model. The results suggest that higher income reduces unhappiness, but one can be satisfied without high income as well. The findings draw attention to the importance of method selection in satisfaction research.

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