Journal of Economic Behavior & Organization vol:81 issue:2 pages:571-582
Abstract:
A huge cross-section literature, written by economists and others, argues that human wellbeing
is U-shaped through the life cycle. In many cases this U-shape is robust (with a wellknown
exception the pattern evident in some U.S. data sets if few independent variables
are included). However, a lively debate is currently ongoing about its true shape. This paper
discusses the identification problem of age, time, and cohort effects. It suggests a simple
way to interpret estimates of age variables in a first-difference framework. Building on
McKenzie’s (2006) methodology, the paper shows that no extra assumptions are needed in
order to identify the second derivative of well-being to age, i.e. to estimate the changes in the
actual age and well-being relationship. An empirical application, using a large German data
set, finds that human well-being is convex in age until after midlife, which is approximately
consistent with a U-shaped pattern through life, and not with the concave relationship
sometimes found in U.S. studies.
