Income and life satisfaction: A 'wave formation' framework

Abstract

Previous research on the relation between wealth and life satisfaction has found conflicting results. The current study aims to bring a "wave formation" framework to the subjective well-being literature to understand the features of non-linearity in the income-life satisfaction association. The study compares individuals' life satisfaction at various wealth levels, moving their way up or down through the income stratum. We hypothesize that when someone with increasing income reaches the top of one stratum their satisfaction is high, but when they move from the top of one stratum to the bottom of the next their satisfaction declines, leading to a wave pattern. Using a cross-sectional design for the dataset of 1654 respondents in Azerbaijan, we apply the Ordered Logit method to identify the income borders of ups-and-downs in the "wave." Threshold levels for each wave element are then calculated separately for males and females after controlling for a set of individual-specific factors. Empirical results support the hypothesis, with life satisfaction following a wave formation. The research findings have implications for policymakers and future research.