Well-Being in Transition: Life Satisfaction in Urban China from 2002 to 2012

Abstract

The improving strength of the labor market is chiefly responsible for the overall increase in life satisfaction in urban China from 2002 to 2012. This is especially true for the segment of the population most vulnerable to the negative effects of the on-going transition to a free-market based economy—people with less than a college education. Income comparison and habituation effects offset any positive effect of increased personal income during this time. The result is that increases in income are not significantly related to the increase in life satisfaction during this time. In the interest of protecting the life satisfaction of those most vulnerable, attention must be paid to maintaining a strong labor market as internal migration restrictions are loosened and the labor market is further liberalized in China. These findings are based on repeated cross-sectional data spanning from surveys used in the annual economic reports published by the Chinese Academy of Social Sciences. A modified version of the Oaxaca decomposition method is developed to take advantage of annual data and also control for adaptation to income effects. The change in life satisfaction from 2002 to 2012 is then divided into segments associated with changes in various life domains.