The ralationship between life satisfaction and household income: A multilevel model approach
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The topic for this thesis is the relationship between household income and life satisfaction, and the discrepancy between results based on within-country analyses and between-country analyses. Time-series of average income and average life satisfaction show that while income has increased, life satisfaction have remained stagnant in most Western countries. Crosssectional comparisons of average income with life satisfaction show a curvilinear effect of life satisfaction. This is often interpreted as that beyond some point there is no additional satisfaction gained by more income or wealth. Simultaneously, cross-sectional within-country analyses show that high income groups are significantly more satisfied with life than low income groups. This inconsistency between within-country and between-country results is often referred to as the Easterlin Paradox, since this inconsistency was first described by Easterlin(1974). Possible individual level interpretations of the Easterlin Paradox are highlighted. This thesis suggests that the interpretation of between-country correlations on the individual level is an example of an ecological fallacy. Errors in the theoretic assumptions are introduced as a possible cause for this fallacy. By considering the drawbacks of macro level and micro level analysis, multilevel models are suggested as a promising approach because of the multilevel nature of the Easterlin Paradox. A building-block approach to multilevel modelling is applied. The intraclass correlation coefficient shows that 20.4 percent of the variance in life satisfaction could be attributed to the country level, while 79.4 percent of the variance could be attributed to the individual level, which strongly suggests the necessity of multilevel modelling. Random intercept models with fixed slopes and random slopes models are applied and show a significant correlation between life satisfaction and household income, but the strength of the relationship seems to vary between income groups and between countries. Income inequality is suggested as a country level variable that could have a mediating effect on the life satisfaction-household income relationship. Income inequality seem to have a significant main effect on life satisfaction, while the validity of the cross-level interaction effect between income inequality and household income is questionable due to methodological considerations. The results strongly suggest that multilevel modelling is a promising approach to understanding the relationship between life satisfaction and income, and that household income matters for life satisfaction in most of the countries in the dataset. Implications of the results for research in the social sciences and psychology in particular is discussed, in addition to practical implications for public policy which aims to promote wellbeing.