Economic and Governance Studies Programs

This paper uses panel data from Russia to identify “residual ” happiness levels that are not explained by the usual demographic and socioeconomic determinants of happiness. We then test whether our residual happiness variable has causal properties in addition to those of the observed demographic and socioeconomic variables on future income. We find that both residual happiness and positive expectations for the future in the initial period are positively correlated with higher income in future periods. People with negative perceptions of their own progress and with higher fear of unemployment increase their incomes less, on average. Psychologists attribute stability in happiness levels over time – analogous to the “residual ” happiness levels that we identify- to positive cognitive bias, such as self-esteem, control, and optimism. The same factors may enhance individuals ’ performance in the labor market