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Working Paper
Walsh, E & Murphy, R
2013
October
Controlling for the Endogeneity in the Relationship between Life Satisfaction and Employment Status
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life satisfaction employment status endogeneity two-stage probit least squares European Social Survey 5
This paper aims to examine if a simultaneous relationship exists between life satisfaction and employment status. A sample of 2,576 Irish adults obtained from the European Social Survey 5 is used to test this hypothesis. A two-stage probit least squares technique estimates life satisfaction and employment status simultaneously and accounts for the endogeneity present in the equations in the system. The findings suggest a bi-directional relationship between life satisfaction and employment status that is, employment affects life satisfaction but also being satisfied with life increases the predicted probability of being employed. Furthermore, this paper finds that the effect of employment status on life satisfaction (as well as the reverse direction effect) is underestimated if simultaneous endogeneity is not accounted for.
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