Arnold and I have a running debate on the connection between material wealth and happiness. He's skeptical of the whole subject; I'm not. He thinks that people's behavior shows that money brings happiness; I've claimed that the standard conclusion that money doesn't bring much extra happiness is introspectively plausible.
Nevertheless, I'll admit that I'm a bit weird, so I'm especially eager to double-check my introspection against a more representative sample. Not so eager, of course, that I'll track down a lot of data and replicate existing research. But fortunately, the General Social Survey website lets us do statistical analysis on the cheap.
I'm frankly surprised at what I found. In the GSS, the estimated effect of income on happiness is several times bigger than I would have guessed. Admittedly, my statistics cut a few corners. For example, the GSS gives people who refuse to state their income the highest possible coding, rather than excluding them from estimation, and I don't bother to fix this. But if anything, this ought to obscure the happiness-income link.
Quick background: The GSS contains the variable HAPPY, which has three possible responses: 1="very happy"; 2="pretty happy"; 3="not too happy." Let's call each of these categories "a step."
Without any control variables, moving from the lowest to the highest 1998 income category makes you about half a step happier.
Controlling for education and IQ does not reduce the effect of income. (Education slightly increases happiness, and IQ matters not).
Controlling for the happiness of your marriage drastically slashes the t-stat on income, but mainly because the number of observations shrinks. The coefficient still implies that moving from the lowest to the highest income category makes you about a quarter step happier. (By way of comparison, moving from a "not too happy" to a "very happy" marriage makes you almost a full step happier).
Controlling for both the happiness of your marriage and your job satisfaction, moving from the lowest to the highest income category makes you about a fifth of a step happier. (By way of comparison, moving from "very dissatisfied" with your job to "very satisfied" makes you about a half step happier).
Bottom line: Either the GSS results are atypical, or the literature surveys I've read have understated the joy of income. Income isn't as important to happiness as having a good marriage or a job you like, but even in a rich country like the U.S., people who earn more feel noticeably better about their lives.