Friends make us happy: Evidence from three European panel studies

Most studies regarding the effect of social capital on subjective well-being suggest that having friends makes us happier and healthier. However, causal evidence exploiting individual-level national panel data and utilizing rigorous modelling approaches is scarce. In this paper, we pursue three goals. First, we replicate the findings of the previous literature by applying fixed effects (FE) models to three major European panel datasets (German Socio-Economic Panel, Swiss Household Panel, and the United Kingdom Household Longitudinal Study) following a rigorous modeling approach only controlling for potential confounders. Secondly, we enhance the literature by accounting for the potential influence of unobserved individual time-constant and time-varying heterogeneity by using random trend models (fixed effects with individual slopes (FEIS)). Thirdly, we inspect the impact of feedback by applying first-difference (FD) models. The results of FE, FEIS, and FD models show that the number of friends has a small positive effect on life satisfaction, confirming previous findings. Our study provides robust evidence and may be useful for social and public health policies tailored to the enhancement of social capital to promote subjective well-being.