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The age of happiness

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Paul Frijters and Tony Beatton, both of the University of Queensland, address “The mystery of the U-shaped relationship between happiness and age” published a paper (hiding behind a paywall) in Journal of Economic Behavior & Organization which is bound to become a media classic. They explain the problem:

What is the relationship between happiness and age? Do we become more miserable as we age, or, is our happiness relatively constant throughout our lives with only the occasional special event (marriage, birth, promotion, and illness) temporarily raising or reducing our happiness, or do we actually get happier as we age?

The answer to this question in the recent economic literature is that the age–happiness relationship is U-shaped.1 This finding holds for the US, Germany, Britain, Australia, Europe, and South Africa. The stylised finding is that individuals gradually become unhappier after their 18th birthday, with a minimum around 50, followed by a gradual upturn in old age. The predicted effect of age can be quite large. For example, the predicted difference in average happiness between an 18 year old and a 50 year old from regressions can be as much as 1.5 points on a 10-point-scale.

This recent economics literature, however, conflicts with an old psychology literature that finds no happiness-age relationship (Cantril, 1965). Palmore and Luikart (1972) comment in their review; ‘Several variables thought to be related to life satisfaction had little or no relationship: age, sex, total social contacts’. More recently, the psychologists Dear et al. (2002) postulate a slight reduction in life satisfaction as people age, due to the prevalence of high life satisfaction becoming less common at higher ages. From this reading, it is clear that either the psychologists have overlooked something important for a long time or that the methodology of economists begets different answers. This paper intends to find out, which it is.

Corrected age–happiness effect using age-bands

After a lot of statistical analysis they present their findings:

This paper started out with the puzzling findings of other researchers of a U-shaped relationship between age and happiness. We replicated this relationship for Germany, Australia, and Britain using well-known panel datasets, the [German Socioeconomic Panel] GSOEP, the [Household Income Labour Dynamics Australia] HILDA, and the [British Household Panel Survey] BHPS. In all three cases, the age–happiness profile became a much clearer U-shape when adding commonly used socio-economic variables. This emergence of the U-shape was not dependent on the inclusion of individuals aged 18–22 or those above 80.

The first main finding was that the U-shape using conventional regressions disappeared when using fixed-effects because of a reverse causality issue: happiness-increasing variables, like getting a job, a high income, and getting married, appear to happen mostly to middle-aged individuals who were already happy. In all three data sets, this reverse causality shows up in cross-sections as inflated coefficients for income, marriage, and getting a job. In order to fit the actual age profile of happiness, the bias in coefficients for socio-economic variables forces the predicted age profile to become U-shaped. When one controls for fixed-effects, the non-linearity all but disappears for all three data sets.

The second main finding was that once one corrects the basic age–happiness profile in the raw data for the twin problems of age-related selectivity and increased honesty-in-reporting for individuals who are in a panel for many years, the age–happiness relationship bears no resemblance to a U-shape, but looks like a ‘late wave’. Relative to 20-year olds, there is not much change in happiness until around 55 after which happiness starts to increase, peaking around 67, with a quite sharp decline around the age of 75. One possible explanation for this is that life becomes stress-free around age 60 and that there are strong health deteriorations after 75.

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Written by Arhopala Bazaloides

June 7, 2012 at 10:33 am

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