Does Income Class Affect Life Satisfaction? New Evidence from Cross-Country Microdata

Abstract

This paper analyzes the impact of income class on subjective wellbeing. Using rich data from the Gallup World Poll, we investigate whether belonging to locally (both country- and time-specific) defined income classes influences individuals’ life satisfaction. We rely on a latent class analysis estimation method, using individual income proxied by household income divided by household size, as an observable characteristic to hypothesize the income classes. We fit a model with one categorical latent variable with three unobserved groupings, here: income classes, which we interpret as lower, middle and upper classes. Our estimates suggest that individuals in the low and middle income classes are, respectively, about 30 and 17 percent of a standard deviation less likely to report a higher life satisfaction in comparison to individuals belonging to the upper income class. The effect of income classes remains robust to the inclusion of standard explanatory variables in this literature.

The Effect of the “Woman Life Freedom” Protests on Life Satisfaction in Iran: Evidence from Survey Data

“…to proxy social status (Connolly and Sevä 2018). We expect that respondents from higher social classes report higher life satisfaction, as shown by several previous studies (Yu and Blader 2020;Kaiser and Trinh 2021;Haddad et al 2022). The relationship between income and happiness was studied by Easterlin (1974; who showed that people with more income are, on average, happier, when considering within-country variation.…”