Essays on earnings and happiness in Australia
This thesis consists of three chapters. The first chapter examines the hypothesis that close distances among people facilitate interactions, resulting in the sharing of knowledge and interpersonal connections. That mechanism is used to explain why people in cities earn more than their counterparts in other areas. The findings, using data for Australia, do not lend support to the proposition that people in cities are better connected. On the contrary, high local populations are associated with low local civic engagement and low political participation. The claim that social interaction results in high earnings also needs to be qualified: among social interactions involving civic engagement, political participation, informal social connectedness and club membership, only informal social connectedness has a positive link with individual wages.
The second and third chapters are concerned with happiness and locations in Australia. The second chapter investigates migrants’ happiness levels in years before and after their move. Often, it is not the case that happy people change locations and become happier, but that unhappy people change their locations and return to their happiness baselines. Migration directions also matter: while moving into urban areas is not associated with significant changes in migrants’ happiness, moving out of urban areas is associated with an increase in migrants’ happiness. Migrants’ happiness remains at the same level in years following the event, and we observe no happiness adaptation to migration in Australia.
People in Australian major urban areas are consistently found to be less happy than people with similar characteristics in other parts of Australia. That conclusion is reached using fixed effects models, crossed random effects models, ordinal models, and with either the HILDA’s happiness measure or a happiness measure constructed from individual satisfaction on life aspects as the dependent variable. Furthering that result, chapter 3 finds significant variations in happiness between areas in Australia, after individual differences are considered. The chapter goes on to explore whether local weather conditions and local income inequality explain the happiness differences among locations.
All three chapters have an element of locations. Not only who we are, but also the environment we live in, determines our labour market outcomes and happiness. Much research has been dedicated to the first, while the second does not receive enough attention; this is the reason why I chose the topic. Australia is a vast country, and conditions in one area could be vastly different from those in another area. There is a need to understand relations between those conditions and individual outcomes. That understanding helps us choose places where we could maximise our potential; it also helps the government build accommodating communities and cities. My research contributes towards that broad goal.
Empirical research on urban economics is feasible because current data are available at both individual and local levels. Linking those data, we can explore questions that we are not able to by using individual or local data alone. This thesis mainly uses data from the Household, Income and Labour Dynamics in Australia (HILDA) survey. Through the individual panel data, we observe individual outcomes over the years and how much the outcomes have to do with their characteristics and locations. To examine the relation between certain local characteristics and individual outcomes, I link individual locations from the HILDA with local information from the Australian Bureau of Statistics (ABS) and the Bureau of Meteorology (BOM).
A limitation of the thesis is while it shows relations between certain local characteristics and residents’ happiness, it does not show why those relations exist. For example, the study finds that people in cities are less happy than people in other areas. There are multiple explanations for that phenomenon such as stress, congestion, or crimes in cities, or that people move to cities for objectives other than maximizing their happiness. The thesis offers no tests for those hypotheses. Likewise, local income inequality is found to be positively linked with residents’ happiness. I examine whether it links to individual happiness through trust. Other than that, the thesis does not explore mechanisms that possibly explain that relationship. Addressing those limitations would require new data and new methods, and findings in this thesis only serve as a first step. The findings in the thesis are nevertheless valuable because we need to know what those relations are before contemplating on different explanations for what we find. The next step would be using relevant data to test which explanations are the most possible. Those are questions for later research.
