We reexamine the claim that the effect of income on subjective well-being
suffers from a systematic downward bias if one ignores that higher income is
typically associated with more work effort. We analyze this claim using German
panel data, controlling for individual unobserved heterogeneity, and
specifying the impact of working hours in a non-monotonic form. Our results
suggest that the impact of working hours on happiness is rather small and
exhibits an inverse U-shape. We do not find evidence that leaving working
hours out of the analysis leads to an underestimation of the income effect.