Great Expectations

Abstract

Human capital is invariably found to be an important explanatory variable of various proxies for well being (WB), i.e. income, happiness, job and life satisfaction, health status. Nevertheless, to date few systematic efforts have been made to explain its various and interconnected functions. The U-shaped age/SWB relation found by many empirical studies suggests that investigating the pattern of different measures of WB over people’s life cycles may yield important information and provide useful insights into the main mechanisms connecting human capital and WB. In this paper I contend that there are four such links. First, human capital improves decision making skills in different life domains. Second, it improves the skills and knowledge in doing things and enjoying life. Third, human capital shapes our identity/personality traits and, fourth, by doing so, it fuels our aspirations in different life domains. The first two effects can be expected to improve people’s performance and subjective well being. Building on Ferrante (2009), more ambiguous is the impact exerted by human capital through the joint action of people’s identity and aspirations. In this paper, I explore data drawn from the Survey on Household Income and Wealth (SHIW) conducted by the Bank of Italy (2008), containing rich information on people’s socioeconomic and educational backgrounds, educational and skill mismatches in the workplace and various measures of WB such as income, happiness, job satisfaction and health status. The tentative explanations for my empirical findings are: (a) people experience large mismatches in aspirations/expectations early in adult life; (d) the latter mismatches depend on education and are largely confined to the labour market; (c) the curvature of the U-shaped age/happiness relationship depends on the level of education. The suggested interpretation of this results is that education affects both people’s expectations and the way in which they react to unfulfilled aspirations.