Money and Happiness: Evidence from the Industry Wage Structure

"Money and Happiness: Evidence from the Industry Wage Structure," NBER Working Paper 17056, May 2011

I no longer believe the results from this paper. If you are interested in this paper, please also see the note below.

"A Cautionary Note on Using Industry Affiliation to Predict Income," with Hannes Schwandt


Many literatures investigate the causal impact of income on economic outcomes, for example in the context of intergenerational transmission or well-being and health. Some studies have proposed to use employer wage differentials and in particular industry affiliation as an instrument for income. We demonstrate that industry affiliation is correlated with individual characteristics, specifically parents' education and own height, conditional on the covariates typically controlled for in these studies. The results suggest that there is selection into industries based on unobservables. This suggests that the exclusion restriction in IV studies of this type is likely violated.