Is Happiness Adaptation to Poverty Limited? The Role of Reference Income

Abstract

This paper analyzes how people’s subjective well-being adapts to income poverty in Switzerland and Germany and presents two empirical findings. First, financial satisfaction (FS) does not adapt in either country. However, life satisfaction fully adapts in Switzerland but not in Germany. Second, people in income poverty have income lower than their reference income. In the long run, those who remain in income poverty are trapped in the situation of insufficient income. Therefore, FS has limited, if any, adaptation.