Advanced Search
MyIDEAS: Login to save this paper or follow this series

Life Satisfaction and Relative Income: Perceptions and Evidence

Contents:

Author Info

  • Guy Mayraz
  • Jürgen Schupp
  • Gert G. Wagner

Abstract

Using a unique dataset we study both the actual and self-perceived relationship between subjective well-being and income comparisons against a wide range of potential comparison groups, enabling us to investigate a broader range of questions than in previous studies. In questions inserted into a 2008 module of the German-Socio Economic Panel Study we ask subjects to report (a) how their income compares to various groups, such a co-workers, friends, and neighbours, and (b) how important these income comparisons are to them. We find substantial gender differences, with income comparisons being much better predictors of subjective well-being in men than in women. Generic (same-gender) comparisons are the most important, followed by within profession comparisons. Once generic and within-profession comparisons are controlled for, income relative to neighbours has a negative coefficient, implying that living in a high-income neighbourhood increases happiness. The perceived importance of income comparisons is found to be uncorrelated with its actual relationship to subjective well-being, suggesting that people are unconscious of its real impact. Subjects who judge comparisons to be important are, however, significantly less happy than subjects who see income comparisons as unimportant. Finally, the marginal effect of relative income on subjective well-being does not depend on whether a subject is below or above the reference group income.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://cep.lse.ac.uk/pubs/download/dp0938.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0938.

as in new window
Length:
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:cep:cepdps:dp0938

Contact details of provider:
Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Income Comparisons; Relative Income; Life Satisfaction; German Socio Economic Panel; SOEP;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Conchita D’Ambrosio & Joachim Frick, 2007. "Income Satisfaction and Relative Deprivation: An Empirical Link," Social Indicators Research, Springer, vol. 81(3), pages 497-519, May.
  2. Clark, Andrew E. & Senik, Claudia, 2009. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," CEPREMAP Working Papers (Docweb) 0907, CEPREMAP.
  3. Senik, Claudia, 2007. "Direct Evidence on Income Comparisons and their Welfare Effects," IZA Discussion Papers 3195, Institute for the Study of Labor (IZA).
  4. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  5. KNIGHT, John & SONG, Lina & GUNATILAKA, Ramani, 2009. "Subjective well-being and its determinants in rural China," China Economic Review, Elsevier, vol. 20(4), pages 635-649, December.
  6. Richard Layard & Guy Mayraz & Stephen J Nickell, 2007. "The marginal utility of income," LSE Research Online Documents on Economics 19745, London School of Economics and Political Science, LSE Library.
  7. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
  8. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  9. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
  10. Robert H. Frank, 2005. "Positional Externalities Cause Large and Preventable Welfare Losses," American Economic Review, American Economic Association, vol. 95(2), pages 137-141, May.
  11. Joerg Dittmann & Jan Goebel, 2010. "Your House, Your Car, Your Education: The Socioeconomic Situation of the Neighborhood and its Impact on Life Satisfaction in Germany," Social Indicators Research, Springer, vol. 96(3), pages 497-513, May.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How does income inequality affect happiness?
    by Winton Bates in Freedom and Flourishing on 2012-02-09 06:07:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jörn-Steffen Pischke, 2011. "Money and Happiness: Evidence from the Industry Wage Structure," CEP Discussion Papers dp1051, Centre for Economic Performance, LSE.
  2. Stefan Schneck, 2011. "The Effect of Relative Standing on Considerations about Self-Employment," SOEPpapers on Multidisciplinary Panel Data Research 426, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Joachim Merz & Henning Stolze, 2010. "Kumulation von Querschnitten - Evaluierung alternativer Konzepte für die kumulierten laufenden Wirtschaftsrechnungen 1999 bis 2003 im Vergleich zur Einkommens- und Verbrauchsstichprobe 2003," FFB-Discussionpaper 85, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  4. Cristina Blanco-Perez, 2012. "Rethinking the Relative Income Hypothesis," SOEPpapers on Multidisciplinary Panel Data Research 501, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Lohmann, Steffen, 2013. "Information technologies and subjective well-being: Does the internet raise material aspirations?," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79708, Verein für Socialpolitik / German Economic Association.
  6. Vendrik, Maarten C.M., 2013. "Adaptation, anticipation and social interaction in happiness: An integrated error-correction approach," Journal of Public Economics, Elsevier, vol. 105(C), pages 131-149.
  7. Schneck, Stefan, 2014. "My Wage is Unfair! Just a Feeling or Comparison with Peers?," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 245-273.
  8. Konstantin Kehl & Stephan Stahlschmidt, 2013. "A new perspective on the economic valuation of informal caare: The well-being approach revisited," SFB 649 Discussion Papers SFB649DP2013-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. Katsunori Yamada & Masayuki Sato, 2010. "Another Avenue for Anatomy of Income Comparisons: Evidence from Hypothetical Choice Experiments," ISER Discussion Paper 0795, Institute of Social and Economic Research, Osaka University, revised Mar 2013.
  10. 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).
  11. Arndt Werner & Johanna Gast & Sascha Kraus, 2014. "The effect of working time preferences and fair wage perceptions on entrepreneurial intentions among employees," Small Business Economics, Springer, vol. 43(1), pages 137-160, June.
  12. Joachim Merz & Tim Rathjen, 2011. "Zeit- und Einkommensarmut von Freien Berufen und Unternehmern," FFB-Discussionpaper 89, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
  13. Andrew Clark & Claudia Senik & Katsunori Yamada, 2013. "The Joneses in Japan: Income Comparisons and Financial Satisfaction," ISER Discussion Paper 0866, Institute of Social and Economic Research, Osaka University.
  14. Simone Schneider, 2010. "The Selection of Pay Referents: Potential Patterns and Impacts on Life Satisfaction," SOEPpapers on Multidisciplinary Panel Data Research 333, DIW Berlin, The German Socio-Economic Panel (SOEP).

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. SOEP based publications

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp0938. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.