Human beings are unable and unwilling to make absolute judgments. Rather, they constantly draw comparisons from their environment, from the past, or from their expectations of the future.
Hold that thought.
Let Y = a person's happiness, as reported on a classic survey.
Let X = a person's income.
One could take it as given that Y is an absolute, objective measure of happiness. Frey's point would then be that the effect of X on Y depends on how people look at X in relative terms. The inability of people to make objective judgments applies to their assessment of X. One might say that X is socially constructed, at least to some extent. I evaluate my income by looking at the income of others around me.
But I think that the inability to make absolute judgments applies to Y, the dependent variable. I just cannot concede that Y is an objective piece of data. When someone is asked how satisfied they are with life, the response has to be along the lines of, "Well, I ought to feel ____, at least based on how I compare myself to others, including myself at other points in my life."
I think of Y as a subjective, social construct. It is a measure of what a person thinks that he or she ought to feel.
All of the appeal of happiness research is based on presuming, as Frey does, that Y is absolute and objective. However, in order to make such a presumption you have to think of Y as an exception to the inability of humans to make absolute judgments.
Suppose that unemployed men report low levels of Y. If Y is objective, then the policy implication may that they should be hired to dig holes and fill them in again. If Y is subjective, then a cheaper alternative may be to help the unemployed feel better about themselves, by somehow reducing the social stigma of unemployment.
If Y is objective, then when I read that people with children are less happy, my response should be to not have children. However, if Y is subjective, then what I should do is gauge the opinions of people close to me. If they lead me to believe that I ought to feel happier if I have children, then having children probably will raise my score on the happiness scale.
Note that when happiness research is applied, it is under the assumption that everyone is the same. If the majority of people who are unemployed are unhappy, then I must want a job. If the majority of people without children are happier than people with children, then it must be a mistake for me to have children.
In economics, it is given that people have different tastes. In happiness policy, the assumption is the opposite.