A Study of the Relationship Between Income and Happiness: Reflecting the Simultaneity Between Working Hours and Earned Income

Abstract

This study aims to examine the effect of earned income on happiness by taking into account the endogeneity between income and working hours. We apply the simultaneous equations using the three-stage least squares method to avoid the biases in estimates when we ignore the simultaneity between income and working hours. Overall, income contributes to increasing happiness, but beyond a certain point, happiness does not increase as much as income increases due to excessive working hours. It is also seen that non-wage workers are enduring long working hours to compensate for the low hourly wage. To promote happiness, raising income is essential, but it must be considered that it may not increase happiness if it leads to long working hours.