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Inequality-Aversion and Income Mobility: A Direct Test

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Andrew Clark

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Abstract

A number of recent papers have found evidence of interdependencies in utility functions, in that, ceteris paribus, individual well-being falls as others' mean income or consumption increases. This paper asks if, in addition, the distribution of income in the reference group matters. I consider full-time employees in eleven waves of British panel data, and take life satisfaction and the GHQ-12 as measures of individual well-being. I find that (i) well-being falls with average reference group income, but (ii) well-being is significantly positively correlated with reference group income inequality. This finding runs counter to the supposed public dislike of inequality. Last, I show that inequality-loving is strongest for those whose own incomes have shown the most variability over the past three years, and those who are on the steepest income path. As such, income inequality seems to include some aspect of opportunity.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2003-11.

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Date of creation: 2003
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Handle: RePEc:del:abcdef:2003-11

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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.:
  1. Tomes, Nigel, 1986. "Income distribution, happiness and satisfaction: A direct test of the interdependent preferences model," Journal of Economic Psychology, Elsevier, vol. 7(4), pages 425-446, December. [Downloadable!] (restricted)
  2. Rutstrom, E. Elisabet & Williams, Melonie B., 2000. "Entitlements and fairness:: an experimental study of distributive preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 75-89, September. [Downloadable!] (restricted)
  3. Amiel, Yoram & Creedy, John & Hurn, Stan, 1999. " Measuring Attitudes towards Inequality," Scandinavian Journal of Economics, Blackwell Publishing, vol. 101(1), pages 83-96, March. [Downloadable!] (restricted)
  4. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September. [Downloadable!] (restricted)
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  5. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August. [Downloadable!] (restricted)
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  6. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May. [Downloadable!] (restricted)
  7. Clark, Andrew E. & Oswald, Andrew J. & Warr, Peter B., 1994. "Is job satisfaction u-shaped in age ?," CEPREMAP Working Papers (Couverture Orange) 9407, CEPREMAP.
  8. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September. [Downloadable!] (restricted)
  9. Roland Bénabou & Efe A. Ok, 2001. "Social Mobility And The Demand For Redistribution: The Poum Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 447-487, May. [Downloadable!] (restricted)
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  10. Morawetz, David, 1977. "Income Distribution and Self-Rated Happiness: Some Empirical Evidence," Economic Journal, Royal Economic Society, vol. 87(347), pages 511-22, September. [Downloadable!] (restricted)
  11. Claudia Senik, . "When Information Dominates Comparison: A Panel Data Analysis Using Russian Subjective Data," William Davidson Institute Working Papers Series 495, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  12. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August. [Downloadable!] (restricted)
  13. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Corneo, Giacomo & Gruner, Hans Peter, 2002. "Individual preferences for political redistribution," Journal of Public Economics, Elsevier, vol. 83(1), pages 83-107, January. [Downloadable!] (restricted)
  15. Finis Welch, 1999. "In Defense of Inequality," American Economic Review, American Economic Association, vol. 89(2), pages 1-17, May. [Downloadable!] (restricted)
  16. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-59, May. [Downloadable!] (restricted)
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  1. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Social Comparison in Games of Status," Levine's Bibliography 122247000000001183, UCLA Department of Economics. [Downloadable!]
  2. Ed Hopkins & Tatiana Kornienko, 2007. "Status, Affluence, and Inequality: Rank-Based Comparisons in Games of Status," Levine's Bibliography 122247000000001442, UCLA Department of Economics. [Downloadable!]
  3. Pérez Truglia, Ricardo Nicolás, 2007. "Can a rise in income inequality improve welfare?," MPRA Paper 4700, University Library of Munich, Germany, revised 22 Dec 2007. [Downloadable!]
  4. Johannes Schwarze & Marco Härpfer, 2004. "Are People Inequality Averse, and Do They Prefer Redistribution by the State? : Evidence from German Longitudinal Data on Life Satisfaction ; A Revised Version," Discussion Papers of DIW Berlin 407, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  5. Daniel Kahneman et al., 2004. "Toward National Well-Being Accounts," American Economic Review, American Economic Association, vol. 94(2), pages 429-434, May. [Downloadable!] (restricted)
  6. Ed Hopkins & Tatiana Kornienko, 2006. "Which Inequality? The Inequality of Resources Versus the Inequality of Rewards," Levine's Bibliography 784828000000000621, UCLA Department of Economics. [Downloadable!]
  7. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
    Other versions:
  8. Ed Hopkins, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," Levine's Bibliography 122247000000001896, UCLA Department of Economics. [Downloadable!]
  9. Claudia Senik, 2004. "Relativizing relative income," DELTA Working Papers 2004-17, DELTA (Ecole normale supérieure). [Downloadable!]
  10. Laure Pasquier-Doumer, 2005. "Perception de l’inégalité des chances et mobilités objective et subjective:une analyse à partir d’entretiens qualitatifs auprès de Liméniens," Working Papers DT/2005/17, DIAL (Développement, Institutions & Analyses de Long terme). [Downloadable!]
  11. Ed Hopkins, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," ESE Discussion Papers 180, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  12. Ed Hopkins & Tatiana Kornienko, 2004. "Consumption, Status and Redistribution," ESE Discussion Papers 127, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
    Other versions:
  13. Claudia Biancotti & Giovanni D'Alessio, 2007. "Inequality and Happiness," Working Papers 75, ECINEQ, Society for the Study of Economic Inequality. [Downloadable!]
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