Adapting to Adaptation? Income adaptation across the life cycle

Abstract

This paper examines whether adaptation to income varies over the life cycle. Income and well-being research often distinguishes short-run and long-run income associations, but rarely asks whether the degree of adaptation itself depends on age. Using about three decades of data from the Socio-Economic Panel (1993–2023), we estimate individual fixed-effects distributed-lag models of life satisfaction on post-government equivalised household income and its annual lags, allowing the full income-lag profile to differ across age groups. The main analysis is restricted to German respondents aged 20 to 80 from retained SOEP core samples. The results show a clear age gradient. Income is positively associated with life satisfaction in the short run for all age groups, but the long-run association declines sharply with age and becomes statistically indistinguishable from zero among older individuals. The implied adaptation share is close to zero among younger adults, positive among middle-aged adults, and highest among older respondents. The pattern is robust to changes in lag length, age-group definitions, equivalence scales, the treatment of extreme income observations, and additional sample-selection checks, including person-level inverse-probability weighting. These findings suggest that people do not only adapt to income over time; they appear to adapt increasingly with older age.