INCOME AND SATISFACTION IN RUSSIA

Transcription

1 PEGGY SCHYNS INCOME AND SATISFACTION IN RUSSIA (Received 1 September 2000; Accepted 1 January 2001) ABSTRACT. The Russian Federation has undergone some drastic economic, socialcultural, and political changes since The income of nearly half of the population has sunk below the poverty line, which has had an enormous impact on their emotional life. In this study, the relationship between income and satisfaction in Russia was examined. Three theories need, comparison, and personality theory were considered. Data were drawn from the first three waves of the Russet panel study ( ). Russians were a little more satisfied with their income and life when they had a higher income. A positive change in income caused an increase in incomesatisfaction over a one-year period. Results also showed that there was a reciprocal relationship between income-satisfaction and life satisfaction, indicating that in addition to bottom-up effects, top-down mechanisms were also at work: life satisfaction is partly a sum of domain satisfactions, but it also reflects a more trait-like character. Furthermore, within comparison theory, social comparison had the largest effect on income-satisfaction, closely followed by income needed (person-environment fit theory), and income deserved (equity theory) with the smallest effect. The need effect of income on income-satisfaction became non-significant when controlled for these three comparison mechanisms. Correction for measurement error of relationships between the endogenous variables resulted in overall stronger effects. KEY WORDS: income, life satisfaction, income-satisfaction, top-down bottom-up discussion, structural equation modeling 1. INTRODUCTION As stated in the introduction to this special issue of the Journal of Happiness, the socio-economic changes that have occurred in Russia in the past decade have caused this country to become a true laboratory for the social sciences. Usually, changes in countries are not so drastic, and to find variation in the phenomena one is interested in, one needs many years, if not decades, to observe changes. In Russia, however, quite dramatic changes have taken place in a relatively short period. The transition from a state controlled Communist economy to a market economy, accompanied by radical changes in the social and political structure, has deeply affected the Russian way of life. The emergence of economic activity and new social values such as freedom of thought, civil rights, and individual initiative have resulted in upward and downward social mobility (Rimashevskaya and Voitenkova, 1997, p. 146). Journal of Happiness Studies 2: , Kluwer Academic Publishers. Printed in the Netherlands.

2 174 PEGGY SCHYNS One of the most obvious changes has been a deterioration in living standards. The shock of the sudden liberalization of prices in January 1992 resulted in a disastrous fall in the standard of living and rapid income polarization. Consequently, 80% of the Russian population were living below the official Russian poverty line during the reformperiod. The government s response was to simply change the definition of the official poverty line. The new poverty line was set at half the income of the old one, but even this threshold was not safeguarded by the Russian government (ibid., p. 147). A survey designed to gather information about the social underclass was held in 1996: it revealed that at least million, 10% of the total population, was living in destitution, four million homeless, four million abandoned children, three million beggars, and three million prostitutes (ibid., p. 149). The following figures indicate the probability of ending up at the bottom end of the social ladder: for single elderly people, 72%; pensioners, 61%; disabled persons, 63%; families with many children, 54%; the unemployed, 53%; single mothers, 49%; refugees, 44%; and resettlers, 31%. These changes deeply affected the subjective well-being of Russians; 66% of the population said that their sense of security had deteriorated; 49% stated that their confidence in the future had decreased; 52% of the Russian people feared for their lives and felt threatened, and 57% did not feel safe anywhere, not even at home (ibid., p. 150). Special surveys reported that in 1997 about 1/5 of the population has adapted to the new conditions, and approximately 1/4 has not and cannot adapt to personal factors (social orientations, mentality, age, state of health, etc.). Over half of the population (55%) are in a state of uncertainty (ibid., p. 150). It can be concluded from these figures that economically as well as emotionally, Russian life has deteriorated dramatically. The topic of the present study is the relationship between income and satisfaction in Russia. The implications of three selected theories are discussed, namely, need theory, comparison theory, and personality theory. Does more money buy more happiness, as is stated in need theory? Or do Russians adapt to changes in income after a while, with no long-term effect on subjective well-being? Or, alternatively, is it a matter of personality which renders more generally satisfied people also more satisfied in other domains of satisfaction? The way in which living

3 INCOME AND SATISFACTION IN RUSSIA 175 conditions, domain satisfactions (such as income-satisfaction), and life satisfaction are causally ordered within these theories also relates to the top-down bottom-up discussion, generated by Diener s article in The present study elaborates on the results of an earlier article entitled The relationship between income, changes in income and life satisfaction in West Germany and the Russian Federation: absolute, relative, or a combination of both? 1 (Schyns, 2000a). The main conclusions of this study were that the need effect of absolute income on income-satisfaction and life satisfaction was stronger in Russia than in Germany, whereas comparison effects of changes in income on incomesatisfaction were more or less the same in both countries. Shortcomings of the article were that, firstly, only a bottom-up model was tested, i.e., personality theory was not included in the model, and, secondly, no corrections for measurement error were possible. The main theories are described and commented on in Section 2. Derivation of hypotheses and translation into an empirical model are given in Section 3. Section 4 briefly describes the data and method used. The empirical results are presented in Section 5. In Sections 6 and 7, the main findings are discussed in the light of earlier outcomes, and directions for future research are given. 2. MAIN THEORIES AND THE TOP-DOWN BOTTOM-UP DISCUSSION Need theory According to need theory, which is based on Maslow s concept of needs (1970), there are universal human needs that are hierarchically structured, and satisfaction of these needs will eventually lead to more subjective well-being. At the most basic level, income can satisfy the need for food, shelter, and clothing, but even at a higher level, income can be seen as an important instrument to satisfy the need for such things as self-respect, prestige, status, and self-actualization. Two strands can be distinguished within need theory. On the one hand, there are theories that are restricted to the satisfaction of purely biological needs. One example is livability theory, which assumes that there is a strong relationship between the living conditions of a country and the subjective well-being of its citizens. Human societies are seen as collective arrangements to gratify inborn human needs. After a certain

4 176 PEGGY SCHYNS level of wealth, however, there is a diminishing marginal utility: more wealth will not contribute to more happiness since all basic needs have been met (Veenhoven, 1991). This relationship applies both to nations and to individuals: the theory accounts for strong correlations between income and subjective well-being in poor countries, and in low income groups within countries (Diener and Biswas-Diener, 1999). The instrumental utility perspective found in the marketing literature is connected to need theory. Here material resources are only valuable if certain biological needs such as the need for food, clothing, shelter are satisfied, but beyond these needs, no real utility will be gained from money (Ahuvia and Friedman, 1998). On the other hand, some argue that even at a higher level of needs, e.g., status or self-actualization needs, income remains an important means to satisfy needs. For example, if one finds happiness in sailing all over the world, or visiting many exciting countries, higher levels of income are needed to satisfy these needs. From this perspective, increases in income above the basic needs level will only result in increases in subjective well-being to the extent that people use their income for higher needs. The emphasis is not so much on how much money people have, but on how it is spent (Diener and Oishi, 2000). Empirical studies have shown that, at least at the level of nations, no convincing proof has yet been found for a levelling off of subjective well-being at higher GDP levels (see, e.g., Diener et al., 1995; Schyns, 1998, 2000b). At the individual level, the results are not conclusive. Several studies have shown that above average incomes do not bring as much subjective well-being as below average incomes (Diener et al., 1993; Schyns, 2000a,b). Other studies have reported, however, that even within top income groups, increasing happiness was found (Diener et al., 1985; Diener and Oishi, 2000). These ambiguities stem partly from, as Diener and Biswas-Diener rightly argue, problems in finding a more rigorous set of definitions and measures of needs, which force researchers to make post-hoc inferences about need fulfilment (Diener and Biswas-Diener, 1999, p. 15). Comparison theory Some theories suggest that living conditions do not have much effect on subjective well-being. Happiness depends on relative standards, or, more precisely, on the distance between the actual situation of the

5 INCOME AND SATISFACTION IN RUSSIA 177 individual and the several standards he or she is applying. These theories are called comparison theory, discrepancy theory, or judgement theory (Diener, 1984, p. 566). The following standards of quality-oflife were focused upon in this study: comparisons with other people (social comparison), with past conditions, with what one deserves, and with what one needs. 2 Easterlin s account of social comparison theory is probably the most well-known in the quality-of-life literature. 3 Some results from more recent studies are discussed below. According to Wood, social comparison is the process of thinking about information about one or more other people in relation to the self (Wood, 1996, pp ). Determining which person will be the reference target is a rather flexible process. Moreover, if a reference target is chosen, the social comparison information may be used in very different ways. For example, if persons with low incomes compare themselves to much poorer persons, this can result in higher subjective well-being since low income persons are financially better off, but it might also lower their subjective well-being, since they might be afraid of ending up in as bad a situation as the reference person. According to Diener et al., it can be concluded that the question is no longer whether or not social comparison can affect subjective well-being. Laboratory studies demonstrate that, at least in the short run, happiness and satisfaction scores can be affected by the standing of others (Diener et al., 1999, p. 283). In general, the problem is to establish which groups or individuals are taken as a reference, and if a reference person is chosen, what the comparison result will be. A second standard on which people judge their income is earlier living conditions. If one s income was higher in the past, people are likely to be more dissatisfied in the present, no matter how high the income in absolute terms is. According to Helson s adaptation theory (1964), adaptation can be defined as diminished responsiveness to repeated or continued stimuli (Diener et al., 1999, p. 285). Stated simply, even though events in the short run can provoke negative or positive experiences, in the long run, people adapt to situations, that is, the norm against which the actual situation is assessed will be altered. Here again the problem is that too little is known about when adaptation occurs and what the underlying processes are (ibid., p. 286). The idea that people compare what they have with what they deserve stems from equity theorists. According to Cook, a state of equity is

6 178 PEGGY SCHYNS said to exist if the actual allocation of outcomes coincides with P. s beliefs about how they should be distributed... (Cook, 1975, p. 376). This would mean, for example, that people who think that their income is less than they deserve are less satisfied with their lives than people whose income is viewed as what they deserve. Another standard that people might use to evaluate their satisfaction with life is what a person needs (Michalos, 1985, p. 350). This idea stems from person-environment fit theorists, who state that net satisfaction is a function of the perceived fit between what someone has resources, talents, abilities and what someone actually needs. Compared with need theory, person-environment fit theory states that it is not absolute income that matters to subjective well-being, but whether a perceived gap between what a person needs and has is not too large. In other words, a very wealthy person can be dissatisfied with life or income, since their income, despite the level of wealth, cannot fulfil personal needs, whereas a poor person can be highly satisfied since there is no gap between this person s needs and resources. Personality Theory There are different strands within personality theory that try to link personality and subjective well-being. The first view holds that some people have a genetic predisposition to be satisfied or dissatisfied with their lives. Subjective well-being is then seen as a personality trait. Evidence comes from twin research, where it has been found that 40 55% of the variation in current subjective well-being comes from genes and 80% of the variation in long-term subjective well-being (Lykken and Tellegen, 1996). Other evidence, however, has shown less strong estimates and can be inconsistent (see Diener et al., 1999, for an overview). The second view looks at the relationship between traits such as extraversion and neuroticism, which have a very strong effect on subjective well-being. Compared to the former view, here subjective wellbeing is seen as heavily influenced by, but distinct from, personality traits. Costa and McCrae, for example, stated that extraversion influences positive affect, and neuroticism, in its turn, influences negative affect (Costa and McCrae, 1980). Lucas et al. (2000) found a quite strong extraversion/pleasant affect relation of 0.74 in an international sample. Other traits that have been related to subjective well-being are optimism, self-esteem, and expectancy for control, which more or less

7 INCOME AND SATISFACTION IN RUSSIA 179 make happy or unhappy persons less responsive to their environment (Diener et al., 1999, pp ). Although stable personality traits have consistently been shown to affect subjective well-being, it has also been accepted in the field that current events influence subjective well-being; in other words, subjective well-being has both trait-like and state-like characteristics (ibid., p. 280). If it is argued that subjective well-being is a trait, or at least consistently influenced by stable personality variables, one would expect at least some stability across situations and over time. This would result firstly in visible top-down effects of life satisfaction on the domain satisfaction. The reasoning behind this effect is that people who are more satisfied with their lives in general should also be more satisfied when at work or when at leisure. These people s predisposition gives them a more rosy outlook which also colours their perception of other life domains. A second indicator of the trait-like character of subjective well-being can be discerned in addition to this stability across situations, namely, the stability over time of life satisfaction. Even though this does not have to imply that life satisfaction does not change, a certain level of stability should be achieved. Stable personality factors should exert a long-term influence on subjective well-being. Veenhoven tested this hypothesis by reviewing several longitudinal studies and found that, over a short time period, subjective well-being was relatively stable, whereas there was less stability over a longer time period (Veenhoven, 1994). More recently, Ehrhardt et al. (2000) studied the constancy of differences in life satisfaction in a German panel study. They found that stable stocks, such as personal capabilities and social relations, explained 29% of the variance in life satisfaction. They concluded that these results were at odds with common theory of personality, which predicts that life satisfaction ranks remain the same over time. The Top-down Bottom-up Discussion Although it may appear to be a separate issue, the so-called top-down bottom-up discussion is connected to the three theories addressed above. According to Diener (1984), one can distinguish between bottom-up and top-down theories of subjective well-being. An example of a bottom-up theory is that happiness is simply the sum of many small pleasures (Diener, 1984, p. 565). In contrast, a top-down theory

8 180 PEGGY SCHYNS assumes that there is a global propensity to experience things in a positive way, and this propensity influences the momentary interactions an individual has with the world (ibid., p. 565). Headey et al., put it more simply by defining bottom-up causation as a process where particular variables cause subjective well-being and top-down causation as a process where subjective well-being produces certain outcomes (Headey et al., 1991, p. 81). Need theory can be depicted as a typical bottom-up theory since the satisfaction of needs will result in higher subjective well-being. Comparison theory also fits the description of a bottom-up theory; there are certain external standards that people use as a yardstick to measure the discrepancy between the actual situation and the desired situation. It is also arguable that comparison mechanisms can be influenced by an individual s personality, life satisfaction, or even domain satisfactions, which would characterize a top-down process. Personality theory reflects a typical top-down approach: global features of personality are thought to influence the way a person reacts to events (Diener, 1984, p. 565). In both variants of personality theory subjective well-being as a personality trait or being heavily influenced by stable personality traits researchers are usually interested in the top-down effects of subjective well-being on domain satisfactions (Diener et al., 1999, p. 279). It is assumed that the overall level of subjective well-being causes people to feel the same in varying domains. Most of the research that has been carried out in the field of subjective well-being falls under the bottom-up approach, meaning that in daily research practice, objective living conditions or subjective domain satisfactions are assumed to influence subjective life satisfaction, and not vice versa. Top-down theories, in contrast, assume that subjective well-being affects subjective domain satisfactions, or more broadly: how events and circumstances are perceived by a person. The important question is, however, whether the bottom-up approach is a correct assumption (Headey and Wearing, 1992, p. 160). Although it is virtually impossible that subjective well-being affects, for example, gender, it is not completely unthinkable and it has indeed been empirically demonstrated that subjective well-being can influence domain satisfactions such as income-satisfaction or satisfaction with marriage. 4 The empirical results presented in this study can contribute to the top-down bottom-up discussion. The relationship between the three theories and the top-down bottom-up debate is summarized in Figure 1.

9 INCOME AND SATISFACTION IN RUSSIA 181 Figure 1. Relation between three theories and top-down bottom-up approach. 3. HYPOTHESES AND MODEL According to need theory, there is an absolute effect of income on income-satisfaction and life satisfaction: the higher the income, the more satisfied people are with their income and also with their lives, since income is an important instrument to satisfy needs, which, ceteris paribus, will lead to a higher level of subjective well-being. Based on earlier results, it was further hypothesized that, at the individual level above a certain level of income, income has less effect on satisfaction with income and with a person s life. Therefore a diminishing marginal utility of income will be witnessed; however, this does not mean that after a certain level of income as claimed by livability theory and the instrumental utility perspective no effect of income can be measured. Comparison theory has many interesting strands. First, only adaptation theory was tested. It was hypothesized that a positive income change will lead to a short-term positive effect on income-satisfaction. Since several studies have shown that recent events usually have a greater impact on subjective well-being than events that happened in the past (e.g., Headey and Wearing, 1992; Suh et al., 1996; Hagerty, 1999), and that people adapt to events in a relatively short time (Diener et al., 1999), it was further hypothesized that the effect of a change in income which happened two years ago will be smaller than a change that occurred in the past year. Second, a more complicated model was tested. Three other elements of comparison theory included in the RUSSET panel study, were added to the model: social comparison theory, equity theory, and personenvironment fit theory. According to social comparison theory, a person will be happier with life and income if their income is above average, and less satisfied if below average. Since the question concerns a comparison of a person s income with the average Russian citizen, a direct link from this perceived discrepancy to income-satisfaction was assumed.

10 182 PEGGY SCHYNS If one receives less income than actually deserved, incomesatisfaction will be lower. If the opposite is the case, i.e., a person receives more than deserved, this might generate feelings of guilt and perhaps lower satisfactions, but, to begin with, a linear positive relationship will be assumed. If the person-environment fit is bad, i.e., a person earns less income than they need, they will be less satisfied with the income. If it is equal to or more than what a person needs, the person will be satisfied. Both effects are also assumed to be directly linked to income-satisfaction. One of the objections raised against the questions given above is that they are ambiguous with regard to causality: do perceived discrepancies cause levels of life satisfaction or domain satisfactions, or do levels of life satisfaction cause persons to see discrepancies in a certain light? For example, if a person s income is less than needed, does this lead to lower scores on income-satisfaction, or does dissatisfaction with their income cause people to claim that it is less than needed, even though, for example, seen more objectively they are relatively wealthy? Unfortunately, because of identification problems, no reciprocal effects could be estimated in the present study. Nevertheless, since life satisfaction as a top-down effect is included in the model, the (bottom-up) effects between the three comparison mechanisms and income-satisfaction are controlled for the level of a respondent s life satisfaction. If perceptions of comparison gaps are completely influenced by life satisfaction, one would expect to find no significant effects of comparison mechanisms on income-satisfaction. Finally, the results can provide interesting clues as to which comparison mechanism is most prevalent in the model. The last hypotheses to be tested were derived from personality theory. According to both variants, life satisfaction as a genetic predisposition or life satisfaction strongly related to personality traits such as extraversion and neuroticism, a more satisfied person will also express more satisfaction with other life domains, i.e., income-satisfaction. This is first of all shown in visible positive top-down effects of life satisfaction on income-satisfaction, and no or at best only marginal bottom-up effects of income or income-satisfaction on life satisfaction, 5 and second, in a certain degree of longitudinal stability in life satisfaction. The first model is presented schematically in Figure 2. Need effects are represented by arrows from income to income-satisfaction and life satisfaction (direct and indirect effects), comparison effects

11 INCOME AND SATISFACTION IN RUSSIA 183 Figure 2. Model 1: The relationship between income, income-satisfaction and life satisfaction, with need, adaptation, and personality effects. LS, Life satisfaction; IS, Income-satisfaction; Inc, Household income adjusted (log); Chin, Change in income. over time are represented by arrows from change in income to income-satisfaction, and personality effects are firstly shown as cross-situational top-down effects from life satisfaction to incomesatisfaction, and secondly as effects over time within life satisfaction. The second model (not shown) portrays three additional comparison mechanisms, namely, the perceived gap between actual income and the average Russian income (social comparison), income needed, and income deserved. For every year, these three mechanisms are linked bottom-up to income-satisfaction. 4. DATA, MEASUREMENT, AND METHOD Three waves from the RUSSET panel study ( ) were used to provide the data for this study. 6 Life satisfaction is defined as the degree to which an individual judges his or her life as a whole favorably (Veenhoven, 1996, p. 17). Life satisfaction was measured using the following question: How satisfied are you with your life as a whole at the present time?. The answer had to be given on a 10-point scale, ranging from 1 (not at all satisfied), to 10 (very satisfied). Income-satisfaction is defined as the degree to which an individual judges his or her income favourably. This was measured by asking the following question: How satisfied are you with the financial situation of your family at the present time?. The same range of answer categories was applied.

12 184 PEGGY SCHYNS Respondents were asked to specify the amount of total monthly household income in roubles before taxes to measure household income. 7 Based on the hypothesis that income has a curvilinear effect on satisfaction, and based on earlier results, the logarithm of income rather than normal income was used (Schyns, 2000a). Change in income was measured by the difference between the logarithm of incomes over one and two years. The three other comparison mechanisms were measured by using the following questions. Respondents were asked to rate their financial situation compared to the average family in Russia, for social comparison. The answer range was 1 (much less) to 5 (much more). Next, respondents were asked how their income compared to what they deserved and then to what they needed, to determine perceived deserved and needed income. The answers ranged again from 1 (much less) to 5 (much more). All variables were treated as continuous variables. Although, strictly speaking, they are at best only ordinal, results from other studies that used both continuous and ordinal variables for subjective well-being found no alarming differences in outcome (e.g., at the level of nations, see Diener et al., 1995). During the period the panel was held, Russia witnessed a huge inflation problem. An inflation correction was carried out by calculating the total cost of food prices in each year. These corrections were later compared to official Russian statistics (State Committee of the Russian Federation on Statistics, Internet) and were found to be very similar. 8 In order to test the three theories described above in one model, it was necessary to include bottom-up and top-down effects simultaneously. Structural equation modeling (SEM) is a technique that is used to deal with non-recursive paths. In this specific study, SEM allowed both bottom-up effects of income-satisfaction on life satisfaction and top-down effects of life satisfaction on income-satisfaction to work simultaneously. This is not possible in OLS regression analysis, where no feedback loops or reciprocal effects are allowed (Schraepler, 1997, p. 10). Simultaneous structural equation modeling allows for estimating non-recursive path coefficients, and not just recursive regression coefficients as is the case in ordinary regression analysis. Another advantage of SEM is that it allows for correction of measurement errors by providing explicit estimates of these parameters. Measurement error attenuates the real relationship between variables,

13 INCOME AND SATISFACTION IN RUSSIA 185 resulting in usually lower effects than actually exist between income and satisfaction (Moum, 1993; Saris et al., 1996). Hence, correction for measurement error contributes to more real estimates of the effects. In order to correct for measurement error, one has to distinguish between latent and manifest variables. 9 Correction is possible whenever at least two indicators, i.e., manifest variables, of the same latent concept are available, either cross-sectionally or longitudinally (Saris, 2000). If there is only one measured variable for one unmeasured variable, this usually results in identification problems (Verschuren, 1991, p. 509). In this study, only one indicator for each latent concept was available cross-sectionally, that is, the latent concepts life satisfaction and income-satisfaction were measured using a single survey question. However, the model is identified if one includes at least three measurement moments of the same indicator, which is the case in the RUSSET panel study, and some additional constraints. This type of model is called a simplex design. 10 A founded theory is a prerequisite for structural equation modeling. Without a theory, SEM remains a tool that can give you as many models as possible. Although post-hoc analyses or specification searches are generally depicted as dangerous if no meaningful theory underlies this search process, it can also be stated that most confirmatory models do not immediately fit the data very well, and certain operations need to be undertaken to find an acceptable model (Byrne, 1998, pp ). Before the results of the first analysis using LISREL 8.30 are presented, a number of technical points need to be mentioned. LISREL models can be evaluated using several measures of fit. The most traditional measure is the Chi-square, in relation to the degrees of freedom of the model, and it describes the extent to which a hypothesized model adequately describes the data (ibid., p. 103). Relatively small Chi-square values relative to the degrees of freedom present good fits of the model. One disadvantage of this test statistic is that it is very sensitive to large samples: if the sample size is large, the chances of finding a Chi-square value that approximates the degrees of freedom are slim. Therefore some other test statistics will also be taken into account, namely, the Root Mean Square Error of Approximation (RMSEA), the Adjusted Goodness-of-Fit Index (AGFI), and the consistent version of the Akaike s Information Criterion (CAIC). The last test statistic takes into account both the degrees of freedom and the sample size (ibid., p. 115).

14 186 PEGGY SCHYNS RMSEA values less than 0.05 indicate good fit, values ranging from 0.08 to 0.10 indicate mediocre fit, and those greater than 0.10 indicate poor fit (ibid., p. 112). AGFI values can range from 0 to 1.00, with values close to 1.00 being indicative of good fit. Finally, CAIC test statistics are used for the comparison of two or more models, where smaller values represent a better fit of the hypothesized model (ibid., p. 115). According to Scherpenzeel and Saris (1996), the procedure to find the best structural model is to start estimating the model with all reciprocal relationships between the satisfaction variables. If problems are encountered, e.g., a model that is empirically not identified or if improper solutions such as negative variances are reported, one has to start with either a bottom-up or a top-down model and allow for the other type of parameters to be introduced in the model if necessary and possible. The LISREL analyses for this study were based on correlation matrices and, when presenting results, standardized (not metric) maximum likelihood estimates are shown. 5. RESULTS First, some descriptive results are presented. Figure 3 shows mean life satisfaction and mean income-satisfaction. 11 Over time, the life and income-satisfaction scores of Russians look rather stable, with a decline in both levels after It is also obvious from the figures that Russians are more satisfied with their lives in general than with their household income. Since these are mean scores, however, they do not say anything about changes in satisfaction at the individual level. The development of mean household income in Russia is shown in Figure 4, and even when corrected for inflation, it looks dynamic. This is not surprising given the drastic economic changes in the country after The apparent small drop in income in 1995 has been recovered in the following years. It is also interesting to see that, after 1995, mean life satisfaction and income-satisfaction have decreased, whereas mean household income has increased. Hence, at the country level, more income has not led to an increase in mean satisfaction. 12 The first theoretical model that is presented here is a model containing only manifest variables, there

15 INCOME AND SATISFACTION IN RUSSIA Life- and Income-satisfaction Mean Life satisfaction Russia Mean Income-satisfaction Russia Figure 3. Mean life satisfaction and income-satisfaction Russia Index HH Income adj. Russia index Figure 4. Household income Russia indexed.

16 188 PEGGY SCHYNS Figure 5. Model 1 with need, adaptation, and personality effects, no correction for measurement, standardized estimates. LS, Life satisfaction; IS, Income-satisfaction; Inc, Household income adjusted (log); Chin, Change in income. is no measurement model: six endogenous variables, life satisfaction and income-satisfaction over three years, and five exogenous variables, three income variables and two change in income variables. 13,14 The three-wave model is identified if one includes two equality constraints for the reciprocal effects in 1994 and On both theoretical and empirical grounds, these assumptions appear justified in the Russian data. Since it is assumed that relationships among other variables are also in equilibrium, four additional equality constraints were imposed. 16 Note that these equality constraints pertain to the nonstandardized coefficients, and that after standardization coefficients previously constrained to be equal may become unequal (see, e.g., Hayduk, 1987, p. 183). In this study, however, differences were only marginal as can be seen in Figure 5. The direct need effect of income on life satisfaction has approximately the same size as the direct effect of income on incomesatisfaction, 0.10 and 0.12 respectively, see Figure 5. This means that the higher someone s income, controlled for other variables, the higher that person s satisfaction with their life and income. Moreover, a positive comparison effect can be seen, 0.15 over the period , as well as a non-significant effect of 0.05 over a two-year period. This means that a positive change in income over one year leads to a small change in income-satisfaction and, if the change took place two years ago, the effect is non-significant.

17 INCOME AND SATISFACTION IN RUSSIA 189 Concerning personality theory, it can be seen that there is a top-down effect of 0.19 from life satisfaction to income-satisfaction: people who are more satisfied with their lives also tend to be more satisfied with their income. However, since there is also a slightly larger bottomup effect of 0.22, the hypothesis that life satisfaction cannot be influenced by domain satisfactions or objective indicators such as income is refuted here. Over time there is an effect of 0.28 of previous life satisfaction on subsequent life satisfaction and an effect of 0.30 of previous incomesatisfaction on subsequent income-satisfaction. If it is assumed that life satisfaction is a personality trait, one would expect more stability over time; however, these low coefficients could also be due to measurement errors. The Chi-square value for this model is (df = 21, N = 1357), RMSEA is 0.05, AGFI is 0.97, and CAIC is (Independence CAIC = , Saturated CAIC = ), values which except for the Chi-square value all represent good fit of the model. One interesting question is whether this model, which includes both bottom-up and top-down effects simultaneously, fits the data better than a model without top-down effects (Schyns, 2000a). Although in the latter model one degree of freedom was gained, the Chi-square value is 103, which is a significant decline in the fit of the model. Hence, the model with a top-down personality effect included is preferred. If one corrects for measurement error, in most cases the studied effects get stronger. LISREL requires a measurement model in order to estimate disattenuated effects among the concepts in the structural model (Headey et al., 1991, pp ). A measurement model was constructed for the six endogenous variables, and the results are shown in Table I. 17 The effects of previous income-satisfaction on subsequent income-satisfaction, in particular, got stronger: 0.40 instead of The other effects between the endogenous variables increased moderately in size. The effect of a change in income over one year on income-satisfaction became twice as large as the absolute effect of income on income-satisfaction. 18 Compared to the model using only manifest variables, this model has a marginally better fit (not shown). The second theoretical model included three additional comparison mechanisms which are perceived gaps between the actual situation and a certain standard, namely, social comparison of a person s own household income with the average income in Russia, comparison of

18 190 PEGGY SCHYNS TABLE I Model 1: Uncorrected effects and effects corrected for measurement error, standardized estimates Uncorrected Corrected effects Life satisfaction through time ( ) Income-satisfaction through time ( ) Income-satisfaction bottom-up (1995) Life satisfaction top-down (1995) Effect on life satisfaction of income (1995) Effects on income-satisfaction of income (1995) of change in income t of change in income t (ns) 0.04 (ns) Note. All effects are significant at the 5% level, except for change in income t 2 on income-satisfaction. a person s actual income with the income that is needed, and finally comparison of household income with the income a person deserves. 19 As was stated above, in the ideal case, a reciprocal relationship between the standards and income-satisfaction should be inserted into the model since both top-down and bottom-up effects can be at work simultaneously. Perceived gaps between a person s actual income and a standard could not only influence a person s income-satisfaction, but their level of life satisfaction mediated by income-satisfaction could also influence the way people perceive gaps between actual income and some standard; for example, because a person has a general disposition to be dissatisfied with their income, they may claim that their income is less than needed or deserved. Due to identification problems, however, only one of the two effects could be incorporated in one model at a time. The discrepancies are first portrayed as having bottom-up influences, then the effects are reversed in an alternative model. Since the top-down model is not a nested model of the bottom-up model, one cannot compare the test statistics. According to Hayduk, one then gives preference to the model with the smallest absolute Chi-square value (Hayduk, 1987, p. 172; Feist et al., 1995, p. 146). The results of the model with bottom-up effects of comparison standards on income-satisfaction are presented in Table II. 20 Compared to the previous model without the three comparison standards, it can be noted that the over-time effects of previous income-satisfaction on later income-satisfaction have declined in size, which is probably

19 INCOME AND SATISFACTION IN RUSSIA 191 TABLE II Model 2: Effects corrected for measurement error, standardized estimates Corrected effects Life satisfaction through time ( ) 0.31 Income-satisfaction through time ( ) 0.23 Income-satisfaction bottom-up (1995) 0.33 Life satisfaction top-down (1995) 0.18 Effect on life satisfaction of income (1995) 0.08 Effects on income-satisfaction of income (1995) 0.01 (ns) of change in income t of change in income t (ns) of perceived gap average income (1995) 0.26 of perceived gap income needed (1995) 0.25 of perceived gap income deserved (1995) 0.13 Note. All effects are significant at the 5% level, except for income and change in income t 2 on income-satisfaction. mainly due to the inclusion of three new exogenous variables to explain income-satisfaction. Social comparison has a positive relationship with incomesatisfaction, meaning that if a person s income is perceived as being higher than the income of the average Russian, they tend to be more satisfied with their actual income. Approximately the same effect was found for income needed: the more a person thinks their income is what they need, the more satisfied they are with the income. Finally, the effect of income deserved was less strong than the other two effects. This could be partly due to a non-linear relationship between this variable and income-satisfaction. If a person believes they have more income than deserved, this might lower their satisfaction with income, e.g., because of feelings of guilt. Another interesting outcome was that the relationships between income-satisfaction and life satisfaction changed somewhat. Bottom-up effects grew stronger, whereas top-down effects declined in size. It should be furthermore remembered that the three comparison effects are net of the influence of life satisfaction on income-satisfaction. This means that there are significant positive bottom-up effects of comparison standards on income-satisfaction, even if one accounts for the fact that a person may have a very positive disposition in life. Finally, the direct need effect of income on income-satisfaction became non-significant when controlled for the three additional

20 192 PEGGY SCHYNS comparison effects, whereas the comparison effect over a one-year period decreased in size, from 0.20 to Apparently, the inclusion of three subjective comparison questions caused a decrease in both direct effects. Nevertheless, in the case of the non-significant direct need effect, it does not imply that there are no effects. It means that even though income no longer has a direct effect on income-satisfaction, it can still influence income-satisfaction through other variables such as the three additional comparison mechanisms. The Chi-square value for this model is (df = 97, N = 1106), RMSEA is 0.03, AGFI is 0.97, and CAIC is (Independence CAIC = , Saturated CAIC = ), which all indicate good fit. Still, perhaps a model with top-down effects running from incomesatisfaction to the three standards fits the data better. This model was run, but fitted the data very poorly (Chi-square value = , df = 49; RMSEA = 0.11; AGFI = 0.85; CAIC = , Saturated CAIC = ). From these results, it can be tentatively concluded that comparison standards affect income-satisfaction, that is, upward comparisons result in decreased income satisfaction, and downward comparisons result in increased satisfaction, and not vice versa. 6. CONCLUSION AND DISCUSSION In the present study, three theories were employed to describe a possible relationship between income, income-satisfaction, and life satisfaction in the Russian Federation during the period Some quite dramatic changes have taken place in nearly every field of Russian life, which makes it an interesting case study. Hypotheses were deduced from need theory, comparison theory, and personality theory, and translated into two models, using structural equation modeling. The main findings are summarized in Table III. In the first model, need, adaptation, and personality effects were included. Compared to a model with no top-down personality effect included, this model fitted the data better. The results were that income, even when controlled for changes in income, had a small direct positive relationship with both income-satisfaction and life satisfaction, meaning that more money on average makes Russians more satisfied with their incomes and with their lives. Nevertheless, a comparison

21 INCOME AND SATISFACTION IN RUSSIA 193 effect was also found: if a person s income had improved compared to a previous year, this would also lead to a higher level of incomesatisfaction. The effect was positive and significant over a one-year period, but over a two-year period, the effect was non-significant. This shows that adaptation takes place over a two-year period: apparently, the Russian people accommodated to a raise or drop in income that took place two years before, but they still felt somewhat more satisfied over a positive change in income in the last year. The fact that a cross-situational top-down (proxy) personality effect could also be incorporated in the model provided an interesting new addition to the model. A positive top-down effect of life satisfaction on income-satisfaction was found, from which it can be concluded that life satisfaction is not merely a sum of many pleasures, but can also influence other domain satisfactions. People who are more satisfied with their income are more satisfied with their lives (bottom-up), but also, more generally satisfied people tend to report greater satisfaction with their income (top-down). In the model, the bottom-up effect was somewhat stronger. Hence, in a strict sense, the cross-situational personality hypothesis that no, or only marginal, bottom-up effects can be found, was rejected. Moreover, the hypothesized longitudinal stability of life satisfaction was quite low in Russia. Since relationships between variables are usually attenuated because of measurement error, a measurement model was constructed for the endogenous variables, i.e., life satisfaction and income-satisfaction. It was found that the effects between the satisfaction variables grew stronger, and that this was especially the case for the relationships between two subsequent satisfaction variables. Furthermore, the correction resulted in an even stronger comparison effect of a change in income on income-satisfaction. Compared to the results obtained from an earlier model (Schyns, 2000a) without personality effects, and no correction for measurement error it was interesting to find a somewhat lower direct need effect of income on income-satisfaction, and a higher comparison effect over a one-year period. Three additional comparison mechanisms were included in the second model, namely the perceived discrepancy or gap between a person s own income and the average income in Russia, between a person s own income and the income needed, and finally between a person s own income and the income deserved. Since these questions

22 194 PEGGY SCHYNS Summary of main findings TABLE III Hypotheses First model Second model (3 additional comparison mechanisms) Need theory 1a There is an absolute effect of income on income-satisfaction and life satisfaction. 1b Above a certain level of income, income has less effect on satisfaction with income and with life. Comparison theory Adaptation theory 2a1 A positive change in income will lead to a short term positive effect on income-satisfaction. 2a2 Since people adapt to situations in a relatively short time, the effect of a change in income which happened two years ago will be smaller than a change that occurred in the past year. Social comparison theory 2b A person will be more satisfied with their income if the actual income is above the average Russian income. + Income, even when controlled for changes in income, showed a small positive relationship with both income- and life satisfaction. + A curvilinear effect of income on satisfaction fitted the data better than a linear effect (not shown). + Significant effects were found. + Effects over a two-year period were non-significant. The direct effect of income on income-satisfaction disappeared when controlled for the three perceived discrepancies in income. + A positive effect was found (approximately same size as effect 2d).

23 INCOME AND SATISFACTION IN RUSSIA 195 Equity theory 2c A person will be less satisfied with their income, if the actual income is lower than the person thinks they deserve. Person-environment fit theory 2d If a person earns less income than they need, they will be less satisfied with their income. Personality theory 3a A generally more satisfied person will also express more satisfaction with other life-domains, i.e., income-satisfaction. This is shown in visible top-down effects of life satisfaction on income-satisfaction, and no (or only marginal) bottom-up effects of income-satisfaction on life satisfaction. 3b There is a certain degree of longitudinal stability in life satisfaction. Note. +=confirmed =not confirmed. Although significant top-down effects were found, bottom-up effects were somewhat stronger. Stability over a one-year period was relatively low. + A positive effect was found (smallest effect). + A positive effect was found.