Understanding the Role of Income in Personal Happiness: A Comprehensive PSM Analysis in the United States

This study examines the relationship between income and individual happiness in the United States using propensity score matching (PSM) analysis. Results reveal that income has a significant impact on individual happiness, with higher income levels associated with increased happiness. The research uses the General Social Survey (GSS) 2022, which marks the beginning of a shift to a mixed-mode survey, incorporating the delivery of both face-to-face and online questions. Employing the general principle of core hypotheses, the analysis aims to understand the causal relationship between income and happiness. The results suggest that improving income could be an effective strategy for increasing individuals’ levels of happiness. The study underlines the importance of considering income as a factor that promotes individual well-being and happiness. 1. INTRODUCTION Happiness, a key aspect of individual well-being, has been widely studied in the US context, particularly in relation to income. Notable research has associated higher income with a reduction in daily sadness, as demonstrated by the results of Stevenson and Wolfers (2008). However, the impact on daily happiness appears to be negligible, suggesting that while increased income may alleviate some emotional distress, it may not contribute significantly to overall happiness. Furthermore, research has shown a significant link between income and suicide rates, with lower rates observed among people who do not pay income tax compared to their tax-paying counterparts (Deaton & Stone, 2014). This raises interesting questions about the psychological implications of tax obligations and the potential role of financial burdens in influencing mental wellbeing. Nevertheless, the influence of income on overall happiness shows a diminishing effect, particularly above a baseline threshold (Easterlin, 2005). This means that the pursuit of additional income may not significantly improve the overall sense of happiness or life satisfaction once basic needs are met. Furthermore, the impact of external conditions, such as income, on happiness is relatively small compared to the influence of individual thoughts and behaviours (Lyubomirsky et al., 2005). With these considerations in mind, this article explores the relationship between income and individual happiness in the United States, using data from the General Social Survey (GSS) 2022. To assess this impact, the study adopts an econometric modeling approach, employing, in particular, the exact matching method. This method was chosen to create a balanced control group, facilitating a fair comparison between individuals with different levels of happiness while taking into account potential selection bias. The rationale for using this methodology is rooted in seminal work on propensity score matching, in particular the studies of Rosenbaum & Rubin (1983). The article highlights the relevance of this approach in answering a crucial question: how do individuals’ happiness levels differ according to their income levels? The aim of adopting this method is to ensure a rigorous comparison, to control for selection bias, and to provide information on the nuanced relationship between income and happiness. This article is structured to provide an in-depth analysis of the relationship between income and happiness. Section 2 presents a comprehensive review of the existing literature, highlighting previous research on the topic. Section 3 then presents the data used for this study, together with stylised facts about income and happiness. Section 4 describes the methodology used for this analysis, including the choice of matching method. Section 5 focuses on the balance check after matching, which ensures the validity of the comparison between the two groups. Section 6 presents and discusses the study’s findings in detail. Finally, the article concludes with Section 7, which summarises the main findings of the study, suggests avenues for future research, and offers recommendations for public policy and interventions aimed at improving individual well-being.