How the well-being function varies with age: The importance of income, health, and social relations over the life cycle

Previous literature has identified income, poor health and social relationships as the most important predictors of subjective well-being (SWB). In addition, the literature has identified a non-linear relationship between age and SWB, with a dip in SWB in mid-life. Explanations of the non-linear age-SWB relationship include the notion of unmet aspirations and the idea that people's emotional response to the drivers of SWB changes with age. Against this background, we use representative longitudinal data for Germany (1992- 2019) with about 570,000 observations for more than 88,000 individuals aged 16-105 years to investigate if and how the association between SWB and its main predictors changes over the life cycle. Using fixed effects estimation to control for cohort effects and unobserved personal characteristics, we find that the marginal effects of income and social relationships vary with age in a wave-like fashion, while the negative marginal effect of poor health increases monotonically and progressively with age. Our results are similar for alternative measures of SWB (life satisfaction and living in misery) and for men and women. The agerelated changes in the importance of income and social relationships for SWB found in this paper help to explain the relationship between age and SWB found in previous literature.