Income and Well-Being

with Manja Derlin (Otto-von-Guericke-Universität Magdeburg), Carina Keldenich (Otto-von-Guericke-Universität Magdeburg)

Abstract:

We examine how modeling choices shape conclusions about the relationship between income and subjective well-being. Drawing on recent research using experience sampling and American Time Use Survey data, we focus on whether higher income continues to be associated with improvements in well-being at high income levels or whether income satiation emerges. The first part of this presentation demonstrates that conclusions regarding satiation are highly sensitive to functional form assumptions. In particular, imposing continuity in piecewise log-linear models substantially changes the estimated relationship and often eliminates evidence of satiation at commonly used thresholds. The second part broadens the analysis by comparing the relationship between income and multiple dimensions of well-being, including cognitive, affective, and eudaimonic measures. Using spline regressions, structural break models, and specification curve analyses, the results show that different estimation approaches can lead to markedly different conclusions. While higher income is consistently associated with higher life evaluation and lower sadness, the relationship with happiness and meaning appears substantially weaker and sometimes even negative. Overall, the findings highlight the importance of carefully evaluating functional form assumptions when studying income and well-being.