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Relativizing relative income

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Claudia Senik

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Abstract

Using over one million observations, from 6 Transition countries and 14 "old" European countries, we show that, in stable EU economies, other people's income affects my utility directly, through comparison effects, whereas in more volatile Transition economies it affects me indirectly, in a cognitive manner. Empirically, using mostly panel data, we show that the average income in one's professional group affects individual subjective well-being negatively in EU countries, whereas the correlation is positive in Transition economies. In Poland, for which we have particularly long panel data, the relative importance of these effects is reversed with the beginning of transition: comparison effects dominate until 1989 whereas information effects are predominant from 1990 onwards. This divergent attitude towards other people's income is potentially important at a time of ongoing European enlargement. More generally, the results lead to a relativization of the relative income hypothesis, which is at the heart of certain critical views of growth policies.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2004-17.

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Date of creation: 2004
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Handle: RePEc:del:abcdef:2004-17

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  1. Neumark, David & Postlewaite, Andrew, 1998. "Relative income concerns and the rise in married women's employment," Journal of Public Economics, Elsevier, vol. 70(1), pages 157-183, October. [Downloadable!] (restricted)
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  4. Christopher D. Carroll & Jody Overland & David N. Weil, 1997. "Comparison Utility in a Growth Model," NBER Working Papers 6138, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Claudia Senik, 2003. "What Can we Learn from Subjective Data ? The Case of Income and Well-Being," DELTA Working Papers 2003-06, DELTA (Ecole normale supérieure), revised Oct 2003. [Downloadable!]
  6. 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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  7. Ravallion, Martin & Lokshin, Michael, 2001. "Identifying Welfare Effects from Subjective Questions," Economica, London School of Economics and Political Science, vol. 68(271), pages 335-57, August. [Downloadable!] (restricted)
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  8. Postlewaite, Andrew, 1998. "The social basis of interdependent preferences," European Economic Review, Elsevier, vol. 42(3-5), pages 779-800, May. [Downloadable!] (restricted)
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  12. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07. [Downloadable!] (restricted)
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  13. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't the US Have a European-Style Welfare System?," NBER Working Papers 8524, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. 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.
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  17. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December. [Downloadable!] (restricted)
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  19. Cooper, Ben & Garcia-Penalosa, Cecilia & Funk, Peter, 2001. "Status Effects and Negative Utility Growth," Economic Journal, Royal Economic Society, vol. 111(473), pages 642-65, July. [Downloadable!] (restricted)
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(explanations, 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. Clark, Andrew & Etilé, Fabrice & Postel-Vinay, Fabien & Senik, Claudia & Van der Straeten, Karine, 2004. "Heterogeneity in Reported Well-Being: Evidence from Twelve European Countries," IZA Discussion Papers 1339, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Eduardo Lora & Juan Camilo Chaparro, 2008. "The Conflictive Relationship between Satisfaction and Income," RES Working Papers 4599, Inter-American Development Bank, Research Department. [Downloadable!]
  3. Claudia Senik, 2005. "Ambition and jealousy. Income interactions in the "Old" Europe versus the "New" Europe and the United States," PSE Working Papers 2005-14, PSE (Ecole normale supérieure), revised Mar 2007. [Downloadable!]
    Other versions:
  4. Eduardo Lora & Juan Camilo Chaparro, 2008. "La conflictiva relación entre la satisfacción y el ingreso," RES Working Papers 4600, Inter-American Development Bank, Research Department. [Downloadable!]
  5. Inmaculada García & José Molina & María Navarro, 2007. "How Satisfied are Spouses with their Leisure Time? Evidence from Europe," Journal of Family and Economic Issues, Springer, vol. 28(4), pages 546-565, December. [Downloadable!] (restricted)
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