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Can money buy “happiness” for Belgians?
Graduate Seminar in Economics Emily Van de Walle
Overview 1. Introduction & Literature Review
2. Data
3.List of Relevant Variables
4.The Econometric Model & Inference Procedures
5.The Results
6.Conclusion
Introduction & Literature Review The starting point: Can happiness be bought?
Research Questions
1
Can happiness be bought?
Belgium
2010
Can money buy “happiness”?
3 aspects
(1) Relationship between income & subjective well-being
(2) Marginal effect of income on subjective well-being
(3) The Satiation Point
(1) Relationship between income & subjective well-being
Can money buy “happiness”?
Positive relationship across countries and over time
HOWEVER....
(2) The marginal effect of income on subjective well-being (3) The satiation point
Can money buy “happiness”?
Level of GDP per capita
Hap
pine
ss
Satiation point
“The modified version of Easterlin’s hypothesis”
(Stevenson & Wolfers, 2013)
Source: Stevenson & Wolfers, 2013
Understanding subjective well-being 2 different aspects → (1) Emotional well-being
→ (2) Life evaluation → Robust positive relationship for life evaluation! (Kahneman & Deaton)
Data Exploring the European Social Survey
2
European Social Survey (ESS)
5th round (2010) – Belgium
European Social Survey
Source: http://www.europeansocialsurvey.org/
List of Relevant Variables
An overview of the dependent & independent variables
3
Dependent variable: Subjective well-being
Definition “Good mental states, including all of the various evaluations, positive and negative, that people make of their lives and the
affective reactions of people to their experiences” (OECD, 2013, p. 12)
Affect Life evaluation
Eudaimonia
Dependent variable: Subjective well-being
Affect Eudaimonia Life Evaluation
Definition – Life evaluation (life satisfaction) “A reflective assessment of a person’s life or some aspect of it”
(OECD, 2013, p. 12)
Subjective well-being: Life evaluation
Life satisfaction/Life evaluation (stflife) “All things considered, how satisfied are you with your life as a
whole nowadays” on a scale of 0 to 10 (ESS, n.d. c, p. 37)?
Happiness (happy) “Taking all things together, how happy would you say you are ”
on a scale of 0 to 10 (ESS, n.d. c, p. 40)?
→ Primary measure
→ Alternative measure
Independent variables
Marital status
Number of children
Gender
Age
Health
Employment status
Social life
Education Discrimin -ation
Handicap Religion
Job satisfaction
Household income
Main independent variable: Household income
Income deciles 1 < €11 040 2 € 11 040 – € 14 160 3 € 14 160 – € 17 640 4 € 17 640 – € 21 360 5 € 21 360 – € 25 560 6 € 25 560 – € 30 600 7 € 30 600 – € 37 440 8 € 37 440 – € 44 880 9 € 44 880 – € 56 760 10 > € 56 760
= Household’s total net income originating from all possible sources
Cardinal variable
→ Indicator variables (ordinal information)
incomeD1,...,incomeD10,incomeQ1,...,incomeQ5
→ Income deciles, income quintiles
“Based on deciles of the actual household income range in Belgium” (ESS,n.d.f.,pg.2)
ESS
, n.d
. f.,
p.4
The Econometric Model & Inference Procedures
The Methodology
4
4.1 The starting point
𝒔𝒕𝒇𝒍𝒊𝒇𝒆 = 𝜷𝟎 + 𝜷𝟏 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟐 + 𝜷𝟐 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟑 + 𝜷𝟑 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟒 + 𝜷𝟒 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟓 + 𝜷𝟓 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟔 + 𝜷𝟔 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟕 + 𝜷𝟕 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟖 + 𝜷𝟖 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟗 + 𝜷𝟗 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟏𝟎 + 𝜷𝟏𝟎 𝒎𝒂𝒓𝒓𝒊𝒆𝒅 + 𝜷𝟏𝟏 𝒄𝒉𝒊𝒍𝒅𝒓𝒆𝒏+ 𝜷𝟏𝟐 𝒎𝒂𝒍𝒆 + 𝜷𝟏𝟑 𝒂𝒈𝒆 + 𝜷𝟏𝟒 𝒉𝒆𝒂𝒍𝒕𝒉𝒚 + 𝜷𝟏𝟓 𝒉𝒂𝒏𝒅𝒊𝒄𝒂𝒑+ 𝜷𝟏𝟔 𝒘𝒐𝒓𝒌(𝒋𝒐𝒃𝒔𝒂𝒕) + 𝜷𝟏𝟕 𝒆𝒅𝒖𝒚𝒓𝒔 + 𝜷𝟏𝟖 𝒔𝒐𝒄𝒊𝒂𝒍 + 𝜷𝟏𝟗 𝒊𝒏𝒎𝒅𝒊𝒔𝒄 + 𝜷𝟐𝟎 𝒓𝒆𝒍𝒊𝒈𝒊𝒐𝒖𝒔 + 𝜷𝟐𝟏 𝒅𝒊𝒔𝒄𝒓𝒊 + 𝒖
First Econometric Model
4.1 The starting point Ordinary Least Squares (OLS) Estimation Procedure
→ BUT: Life evaluation = Ordinal variable
→ Ordered choice model is more appropriate!!
→ Ferrer-i-Carbonell & Frijters (2004):
Cardinal OLS ↔ Ordered choice model
“Differences between the models are negligible”
Design Weights
→ “Correct for a [potential sample] bias that is introduced by e the sampling design” (ESS, 2014, p.1)
4.2 Inference procedures
Jobsat (job satisfaction) v.s. Work (employed/unemployed)
→ Jobsat = Significant ↔ Work = Insignificant
→ Jobsat → Sample limited to employed people
P>|t| for work P>|t| for jobsat
Econometric model using income deciles 0.50 0.00***
Econometric model using income quintiles
0.44 0.00***
4.2 Inference procedures Income deciles
Income deciles P>|t|
incomeD2 0.906
incomeD3 0.556
incomeD4 0.715
incomeD5 0.285
incomeD6 0.205
incomeD7 0.234
incomeD8 0.093*
incomeD9 0.092*
incomeD10 0.104
Income quintiles P>|t|
incomeQ2 0.526
incomeQ3 0.037**
incomeQ4 0.011**
incomeQ5 0.003***
Econometric models using jobsat - Significance level = 10%
v.s. Income quintiles
4.2 Inference procedures Tests of statistical significance
P>|t|
incomeQ2 0.526
incomeQ3 0.037**
incomeQ4 0.011**
incomeQ5 0.003***
married 0.021**
children 0.006***
male 0.844
Age 0.571
P>|t|
healthy 0.519
handicap 0.100
jobsat 0.000***
eduyrs 0.395
social 0.006***
inmdisc 0.126
religious 0.811
discri 0.839
Econometric models using jobsat, income quintiles - Significance level = 10%
(1) discri = 0 (2) male = 0 (3) religious = 0 (4) age = 0 (5) healthy = 0 (6) eduyrs = 0 (7) inmdisc = 0 (8) handicap = 0 (9) incomeQ2 = 0 F( 9, 713) = 0.76 Prob > F = 0.6527
Individual t-tests Joint F-test
4.2 Inference procedures Insignificant variables
→ discri
→ religious
→ handicap
→ inmdisc
→ incomeQ2
→ age
→ healthy
→ eduyrs
→ male
Not recommended by academic literature → Omit!
Another (significant) variable which proxies social life → Omit!
Relevant to our research question → Retain!
Highly recommended by the literature
→ Omit!
age, age² (significant) → Retain! rhealth (significant) → Retain!
The Econometric Models
𝒔𝒕𝒇𝒍𝒊𝒇𝒆 = 𝜷𝟎 + 𝜷𝟏 𝒊𝒏𝒄𝒐𝒎𝒆𝑸𝟐 + 𝜷𝟐 𝒊𝒏𝒄𝒐𝒎𝒆𝑸𝟑 + 𝜷𝟑 𝒊𝒏𝒄𝒐𝒎𝒆𝑸𝟒 + 𝜷𝟒 𝒊𝒏𝒄𝒐𝒎𝒆𝑸𝟓 + 𝜷𝟓 𝒎𝒂𝒓𝒓𝒊𝒆𝒅 + 𝜷𝟔 𝒄𝒉𝒊𝒍𝒅𝒓𝒆𝒏 + 𝜷𝟕 𝒂𝒈𝒆 + 𝜷𝟖 𝒂𝒈𝒆² + 𝜷𝟗 𝒓𝒉𝒆𝒂𝒍𝒕𝒉 + 𝜷𝟏𝟎 𝒋𝒐𝒃𝒔𝒂𝒕 + 𝜷𝟏𝟏 𝒔𝒐𝒄𝒊𝒂𝒍 + 𝒖
Second Econometric Model
𝒔𝒕𝒇𝒍𝒊𝒇𝒆 = 𝜷𝟎 + 𝜷𝟏 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟐 + 𝜷𝟐 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟑 + 𝜷𝟑 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟒 + 𝜷𝟒 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟓 + 𝜷𝟓 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟔 + 𝜷𝟔 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟕 + 𝜷𝟕 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟖 + 𝜷𝟖 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟗 + 𝜷𝟗 𝒊𝒏𝒄𝒐𝒎𝒆𝑫𝟏𝟎 + 𝜷𝟏𝟎 𝒎𝒂𝒓𝒓𝒊𝒆𝒅 + 𝜷𝟏𝟏 𝒄𝒉𝒊𝒍𝒅𝒓𝒆𝒏+ 𝜷𝟏𝟐 𝒎𝒂𝒍𝒆 + 𝜷𝟏𝟑 𝒂𝒈𝒆 + 𝜷𝟏𝟒 𝒉𝒆𝒂𝒍𝒕𝒉𝒚 + 𝜷𝟏𝟓 𝒉𝒂𝒏𝒅𝒊𝒄𝒂𝒑+ 𝜷𝟏𝟔 𝒘𝒐𝒓𝒌(𝒋𝒐𝒃𝒔𝒂𝒕) + 𝜷𝟏𝟕 𝒆𝒅𝒖𝒚𝒓𝒔 + 𝜷𝟏𝟖 𝒔𝒐𝒄𝒊𝒂𝒍 + 𝜷𝟏𝟗 𝒊𝒏𝒎𝒅𝒊𝒔𝒄 + 𝜷𝟐𝟎 𝒓𝒆𝒍𝒊𝒈𝒊𝒐𝒖𝒔 + 𝜷𝟐𝟏 𝒅𝒊𝒔𝒄𝒓𝒊 + 𝒖
First Econometric Model
The Econometric Models
First Econometric Model Second Econometric Model
R² 0.1240 0.1445
Adjusted R² 0.0980 0.1314
AIC 2 546.656 2 509.376
BIC 2 647.703 2 564.492
Comparison of the first and second econometric model
4.2 Inference procedures
Testing the functional form (FF)
→ Ramsey RESET test
→ 1st econometric model: FF misspecification
→ 2nd econometric model: no FF misspecification
First Econometric Model Second Econometric Model
Prob > F 0.000 0.1445
Ramsey RESET test
Ramsey RESET test using powers of the fitted values of stflife H0: Model has no omitted variables
4.2 Inference procedures
Multicollinearity
→ Variance inflation factor (VIF)
→ Mean VIF > 5 → High multicollinearity!
→ Multicollinearity can be tolerated
Variable VIF
age 65.53
age2 64.92
incomeQ4 6.89
incomeQ5 6.09
incomeQ3 5.28
incomeQ2 3.88
children 1.44
married 1.41
rhealth 1.08
social 1.04
jobsat 1.03
MEAN VIF 14.42
4.2 Inference procedures
Testing for heteroscedasticity
→ White test: Heteroscedasticity!
→ Solution: Robust standard errors + Weights
Second Econometric Model
P-value 0.104
White Test
H0: Constant variance (Homoscedasticity) White’s general test statistic: 91.790 Chi-sq(63) P-value = 0.0104
Results Can money buy “happiness” for Belgians?
5
Second Econometric Model
5.1 Relationship between income & subjective well-being Sign?
→ Positive relationship
Significance?
→ Depends on…
- the reference group (here: incomeQ1)
- the income quintile
Interpretation: Sign + Significance
Variable Coef. P>|t|
incomeQ2 .1115 0.752
incomeQ3 .6364 0.058*
incomeQ4 .7023 0.034**
incomeQ5 .8626 0.010*
Second econometric model
5.1 Relationship between income & subjective well-being
Magnitude?
→ Caution: stflife = ordinal variable
→ Interpretation in terms of units
→ Statements: ↓,↑, comparisons
Variable Coef. P>|t|
incomeQ2 .1115 0.752
incomeQ3 .6364 0.058*
incomeQ4 .7023 0.034**
incomeQ5 .8626 0.010*
Second econometric model
0.8626 > 0.7023
5.2 Marginal effect of income on subjective well-being
Decreasing marginal effect?
Different conclusions depending on the method
→ 1) Second econometric model
→ 2) Plotting income quintiles on
the scale of life satisfaction Level of GDP per capita
Hap
pine
ss
Satiation point
Source: Stevenson & Wolfers, 2013
5.2.1 Assessing the marginal effect via the econometric model Second econometric model with alternating reference groups (incomeQ)
5.2.1 Assessing the marginal effect via the econometric model
Only significant upward movement: 2nd income quintile → 3rd income quintile
Marginal effect: ↑ ↓ ↑
5.2.2 Assessing the marginal effect via a plot of income quintiles on the scale of life satisfaction
Plot:
→ X-axis: Income Quintiles (1-5)
→ Y-axis: Life Satisfaction (1-10)
Decreasing marginal effect
Satiation point?
6.5
77.5
8
Life
sa
tisfa
ctio
n
1 2 3 4 5Income Quintiles
Satiation point?
5.3 The Satiation Point
Life
sa
tisfa
ction
66.5
77.5
8
0 .5 1 1.5 2 2.5Log(income)
Lowess Linear fit
Plot:
→ X-axis: Log(income)
→ Y-axis: Life Satisfaction (1-10)
→ Lowess & Linear fit
Stevenson & Wolfers (2013, p.2)
→ Satiation point:
“The non-parametric fit flattens
out once basic needs were met”
→ No satiation point
Conclusion The finishing line
6
Conclusion
Relationship between income and subjective well-being for Belgians
(1) Relationship between income and subjective well-being
→ Robust positive relationship
(2) Marginal effect of income on subjective well-being
→ Depends on the method: Model (↑,↓,↑) ↔ Plot (↓)
(3) Satiation point
→ No evidence
Can money buy “happiness” for Belgians?
References
References of the paper: Can money buy “happiness” for Belgians? ◈Adkins, L. C., & Carter Hill, R. (2011). Using Stata for Principles of Econometrics (4th ed.). John Wiley & Sons ◈Bandura, R., & Conceição, P. (2008). Measuring Subjective Wellbeing : A Summary Review of the Literature. United Nations Development Programme: research papers. Retrieved on 12/03/2016 from http://web.undp.org/developmentstudies/docs/subjective_wellbeing_conceicao_bandura.pdf ◈Binder, M., & Coad, A. (2014). Heterogeneity in the Relationship between Unemployment and Subjective Well-Being: A Quantile Approach (Working paper No. 808). Retrieved from the Levy Economics Institute of Bard College website: http://www.levyinstitute.org/publications/heterogeneity-in-the-relationship-between-unemployment-and-subjective-well-being-a-quantile-approach ◈Deaton, Q., & Kahneman, D. (2010). High income improves evaluation of life but not emotional well-being. PNAS, 107(38), 16489–16493. doi:10.1073/pnas.1011492107 ◈Diener, E., Lucas, R.E., & Scollon, C.N. (2006). Beyond the hedonic treadmill: Revising the adaptation theory of well-being”. American Psychologist, 61(4), 305-314. ◈ESS. (n.d. a). ESS5 – 2010 Data Download. Retrieved on 08/02/2016 from http://www.europeansocialsurvey.org/data/download.html?r=5 ◈ESS. (n.d. b). About ESS. Retrieved on 10/03/2016 from http://www.europeansocialsurvey.org/about/index.html ◈ESS. (n.d. c). ESS5 – Appendix A6: Variables and Questions. Retrieved on 10/03/2016 from http://www.europeansocialsurvey.org/docs/round5/survey/ESS5_appendix_a6_e04_0.pdf ◈ESS. (n.d. d) Family, work and well being (ESS2 2004, ESS5 2010). Retrieved on 11/03/2016 from http://www.europeansocialsurvey.org/data/themes.html?t=family ◈ESS. (n.d. e) Personal and Social Well-being (ESS3 2006, ESS6 2012). Retrieved on 11/03/2016 from http://www.europeansocialsurvey.org/data/themes.html?t=personal ◈ESS. (n.d. f) ESS4 - Appendix A5: Income. Retrieved on 11/03/2016 from https://www.europeansocialsurvey.org/docs/round4/survey/ESS4_appendix_a5_e05_0.pdf ◈ESS. (2014) Weighting European Social Survey Data. Retrieved on 12/03/2016 from https://www.europeansocialsurvey.org/docs/methodology/ESS_weighting_data_1.pdf ◈Ferrer-i-Carbonell, A. and Frijters, P. (2004). How Important is Methodology for the Estimates of the Determinants of Happiness? The Economic Journal, 114, 641–659. ◈Gabaix, X., & Laibson, D. (2008). The Seven Properties of Good Models. NYU Methodology Conference. Retrieved on 11/03/2016 from http://scholar.harvard.edu/files/laibson/files/seven_properties_2008.pdf ◈Griffiths, E.W., Carter Hill, R., & Lim, G.C. (2012). Principles of econometrics (4th ed.). Asia: John Wiley & Sons. ◈Happiness economics. (2016). In Wikipedia. Retrieved on 08/02/2016 from https://en.wikipedia.org/wiki/Happiness_economics ◈Helliwell, J.F. (2002). How’s life? Combining individual and national variables to explain subjective well-being (Working paper No. 9065). Retrieved from the Bureau of Economic Research website: http://www.nber.org/papers/w9065
◈Happiness economics. (2016). In Wikipedia. Retrieved on 08/02/2016 from https://en.wikipedia.org/wiki/Happiness_economics ◈Helliwell, J.F. (2002). How’s life? Combining individual and national variables to explain subjective well-being (Working paper No. 9065). Retrieved from the Bureau of Economic Research website: http://www.nber.org/papers/w9065 ◈Inglehart, R. (2002). Gender, aging, and subjective well-being. International Journal of Comparative Sociology, 43 (34), 391-408. doi: 10.1177/002071520204300309 ◈International Wellbeing Group. (2013). Personal Wellbeing Index: 5th Edition. Melbourne: Australian Centre on Quality of Life, Deakin University. Retrieved on 12/03/2016 from http://www.acqol.com.au/iwbg/wellbeing-index/pwi-a-english.pdf ◈Lamu, A.N., & Olsen, J. A. (2016). The relative importance of health, income and social relations for subjective well-being: An integrative analysis. Social Science & Medicine, 152, 176-185. doi: 10.1016/j.socscimed.2016.01.046 ◈Michalos, A.C. (2007). Education, happiness and wellbeing. OECD, 2nd World Forum, Istanbul 2007. Retrieved on 24/04/2016 from http://www.oecd.org/site/worldforum06/38303200.pdf ◈OECD. (2013). OECD Guidelines on Measuring Subjective Well-being. OECD Publishing. doi: 10.1787/9789264191655-en ◈Stevenson, B.,& Wolfers, J. (2013). Subjective well-being and income: Is there any evidence of satiation. American Economic Review, 103(5), 598-604. doi:http://dx.doi.org/10.1257/aer.103.3.598 ◈The U-bend of life. (2010, December 16). The Economist. Retrieved on 24/04/2016 from www.economist.com ◈Van Praag, B.M.S., Frijters, P., & Ferrer-i-Carbonell, A. (2003). The anatomy of subjective well-being. Journal of Economic Behaviour and Organisation, 51, 29-49. Credits concerning the presentation ◈ Presentation template by SlidesCarnival ◈ Photographs by Benedikt Geyer ◈ Other images: - http://www.theasian.asia/wp-content/uploads/2013/09/1_Belgium-country-shape-and-flag1.png - https://d30y9cdsu7xlg0.cloudfront.net/png/21216-200.png - http://image005.flaticon.com/1/png/512/49/49232.png
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