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Age, Life-Satisfaction, and Relative Income: Insights from the UK and Germany

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  • Fitzroy, Felix R.
  • Nolan, Michael
  • Steinhardt, Max F.
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    Abstract

    We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on lifesatisfaction are positive and significant for those under 45, consistent with Hirschman’s (1973) ‘tunnel effect’, and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income’s signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.

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    File URL: http://repo.sire.ac.uk/handle/10943/427
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    Bibliographic Info

    Paper provided by Scottish Institute for Research in Economics (SIRE) in its series SIRE Discussion Papers with number 2011-55.

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    Date of creation: 2011
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    Handle: RePEc:ags:aaea07:427

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    Keywords: subjective life-satisfaction; comparison income; reference groups; age; welfare;

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    Cited by:
    1. Grund, Christian & Martin, Johannes, 2012. "Monetary Reference Points of Managers: An Empirical Investigation of Status Quo Preferences and Social Comparisons," IZA Discussion Papers 7097, Institute for the Study of Labor (IZA).
    2. Akay, Alpaslan & Martinsson, Peter, 2012. "Positional Concerns through the Life Cycle: Evidence from Subjective Well-Being Data and Survey Experiments," IZA Discussion Papers 6342, Institute for the Study of Labor (IZA).

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