This paper explores differences in the determinants of long term happiness levels versus those of short term fluctuations. It also departs from the usual analysis of the effects of income on happiness, and explores the effects of happiness on future income. We find, based on panel data for 6500 respondents in Russia for 1995-2000, that static variables such as gender, stable marital status, and education levels, are more likely to have effects on normal happiness levels, while changes in socioeconomic or marital status (particularly divorce) are more likely to cause fluctuations in happiness levels. We also find both happiness and positive expectations for the future in the initial period are positively correlated with higher levels of income in future periods. People with negative perceptions of their own past progress and/or with higher fear of unemployment, meanwhile, increase their incomes less, on average, over the period. The psychology literature attributes stability in happiness levels over time to positive cognitive bias, such as self esteem, control, and optimism. The same factors may be at play here, and enhance individuals’ performance in the labor market.
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