More Money or Better Standing? The Relationship Between Income and Happiness among Indonesians

Abstract

In the field of happiness economics, there is an ongoing debate over which income measure most strongly determines happiness: absolute income or relative income. Despite numerous international studies, empirical analysis remains limited in the Indonesian context. Using Survei Pengukuran Tingkat Kebahagiaan (SPTK) 2021, Indonesia’s latest happiness survey dataset, this study explored the correlation between both income measures (absolute and relative) and happiness among Indonesians. This study used ordinary least squares (OLS) regression analysis to examine the correlation. Initially, absolute income showed a stronger association with happiness. Controlling for relative income, a standard deviation (SD) increase in absolute income was associated with a 0.15 SD increase in happiness, while controlling for absolute income, a SD increase in relative income is associated with a 0.06 SD increase in happiness. After accounting for demographic variables, both income measures yield similar results, a SD increase in either absolute income or relative income associated with about 0.08 SD increase in happiness level. In addition, gender interaction found that males experience a slightly larger increase in happiness than females for each additional unit of income measure. Education level interaction indicated that income’s effect is weaker as individuals achieve higher education.