Estimating the influence of life satisfaction and positive affect on later income using sibling fixed effects
- aSchool of Public Policy, University College London, London WC1H 9QU, United Kingdom;
- bCentre for Economic Performance, London School of Economics, London WC2A 2AE, United Kingdom;
- cDepartment of Economics and Centre for Competitive Advantage in the Global Economy, University of Warwick, Coventry CV4 7AL, United Kingdom; and
- dInstitute for the Study of Labor, D-53113 Bonn, Germany
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Edited by Jose A. Scheinkman, Princeton University, Princeton, NJ, and approved October 15, 2012 (received for review July 10, 2012)

Abstract
The question of whether there is a connection between income and psychological well-being is a long-studied issue across the social, psychological, and behavioral sciences. Much research has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is arguably understudied. Using data from a large US representative panel, we show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life. We focus on earnings approximately one decade after the person’s well-being is measured; we exploit the availability of sibling clusters to introduce family fixed effects; we account for the human capacity to imagine later socioeconomic outcomes and to anticipate the resulting feelings in current well-being. The study’s results are robust to the inclusion of controls such as education, intelligence quotient, physical health, height, self-esteem, and later happiness. We consider how psychological well-being may influence income. Sobel–Goodman mediation tests reveal direct and indirect effects that carry the influence from happiness to income. Significant mediating pathways include a higher probability of obtaining a college degree, getting hired and promoted, having higher degrees of optimism and extraversion, and less neuroticism.
Footnotes
- ↵1To whom correspondence should be addressed. E-mail: jdeneve{at}post.harvard.edu.
Author contributions: J.-E.D.N. and A.J.O. designed research; J.-E.D.N. performed research; J.-E.D.N. analyzed data; and J.-E.D.N. and A.J.O. wrote the paper.
The authors declare no conflict of interest.
This article is a PNAS Direct Submission.
This article contains supporting information online at www.pnas.org/lookup/suppl/doi:10.1073/pnas.1211437109/-/DCSupplemental.