The Relationship between Income and Well-Being, an Irish Study

Abstract

This study presents an empirical analysis of the importance of absolute, reference and relative income on individual well-being in Ireland. Four primary hypotheses are tested: First, whether individual income results in a positive effect on individual well-being; Second, whether reference group income results in a negative effect on individual well-being; Third, whether relative income results in a positive effect on individual well-being and finally, whether the effect of income on well-being is affected by the different definitions of well-being; namely that of happiness and life satisfaction. A subjective self-reported measure of life satisfaction and happiness is used in order to measure individual well-being levels. The ordered probit technique is applied to data from the European Values Study 2008 to estimate the well-being equation. Results find a statistically significant positive absolute income coefficient. This illustrates that higher household income results in higher subjective well-being. Thus, in Ireland richer individuals are found to report higher levels of well-being than co-citizens at the bottom of the income distribution. Reference income results find a negative coefficient illustrating that higher reference group income results in lower subjective well-being. Therefore, this study finds that in Ireland an increase in reference group income results in a reduction in individual well-being. This study finds a positive relative income coefficient. Hence, this study finds that in Ireland the richer a particular individual is compared to his/her reference group the higher subjective well-being that individual will possess. This study identifies that, in the context of considerable similarity, particular variations between the happiness and life satisfaction regression results are found. Primarily, findings illustrate that non-economic conditions have a larger effect on happiness than life satisfaction. Economic conditions however, depict a larger effect on life satisfaction than happiness.