Self-assessed well-being and economic rank in South Africa

Abstract

This study explores subjective measures of well-being in South Africa collected in the first two waves of the National Income Dynamics Study. These subjective measures include individual life satisfaction, current self-assessed economic rank and expected economic rank in the future. The paper describes how the distributions of these measures have changed over the course of the panel and it investigates the relationship between life satisfaction and perceived economic rank in a multivariate context, controlling for individual fixed effects. The panel data suggest a leftward shift in the distribution of life satisfaction over the two waves. Moreover, the majority of adults did not perceive their economic rank as having improved and they reported lower expectations of future upward economic mobility. Perceptions of current and future economic rank are key correlates of life satisfaction, findings that remain robust to controls for unobserved individual heterogeneity.

Keywords:

• subjective well-being
• life satisfaction
• relative income
• perceived economic rank

JEL codes:

• D31
• D63
• I31

Notes

2 See, for example, the 1993 Project for Statistics on Living Standards and Development and the 1998 October Household survey.

3 Most of the earlier literature using these data overlooked this latter concern, and instead dealt with whether a single respondent was able to report reliably on the household's subjective well-being (Bookwalter et al. 2006; Kingdon & Knight 2006, 2007).

4 In NIDS, detailed information is collected on both labour and non-labour income received by individuals (including earnings, social grants, remittances and private pensions). Non-labour income is collected as point values. Wages and earnings are also reported as point values except where respondents did not or would not provide this information, in which case earnings were reported in parentheses. To generate a continuous income variable, earnings in parentheses were assigned the mid-point of the parenthesis.

5 Life satisfaction is often also estimated using ordered probit regressions. Because the cut-off points in the probit regressions for wave 1 and for the pooled sample are relatively equally spaced, OLS regressions are used (treating the dependent variable as a linear measure of subjective well-being).

6 A Hausman test rejected the null hypothesis of no systematic differences between the coefficients from a random and fixed-effects model (χ² = 57.56), suggesting that a fixed-effects model is more appropriate.

7 A fall in the estimated coefficients may derive from both endogeneity bias and measurement error.

8 Although not reported in Table 4, a quadratic in age is significant in both the Wave 1 and pooled regressions, with subjective well-being initially decreasing with age and then increasing, a common finding documented across a wide range of empirical studies on subjective well-being.

9 The positive and significant coefficient for the wave 1 dummy variable captures the aggregate decline in reported subjective well-being across the waves.