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The Optimal Choice of a Reference Standard for Income Comparisons: Indirect Evidence from Immigrants' Return Visits

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  • Holger Stichnoth

Abstract

I propose two new tests of Falk and Knell's (2004) prediction that individuals' reference income increases with ability. To overcome the difficulty that the reference incomeis not observed in existing large data sets, I extend Falk and Knell's model to establish a link between immigrants' reference income and their return visits to their countries of origin. I derive the (arguably counter-intuitive) predictions that more educated immigrants are less likely to have returned to their country of origin for a visit, and that they are more likely to have difficulty feeling at home when they do return for a visit. Both predictions are confirmed on four waves of data from the German Socio-Economic Panel. The estimated marginal effects are statistically significant, but rather small in size.

Suggested Citation

  • Holger Stichnoth, 2010. "The Optimal Choice of a Reference Standard for Income Comparisons: Indirect Evidence from Immigrants' Return Visits," SOEPpapers on Multidisciplinary Panel Data Research 264, DIW Berlin, The German Socio-Economic Panel (SOEP).
    • Handle: RePEc:diw:diwsop:diw_sp264
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    1. Conchita D’Ambrosio & Joachim Frick, 2007. "Income Satisfaction and Relative Deprivation: An Empirical Link," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 81(3), pages 497-519, May.
    2. 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.
    3. Johannes Schwarze & Rainer Winkelmann, 2005. "What can happiness research tell us about altruism? Evidence from the German Socio-Economic Panel," SOI - Working Papers 0503, Socioeconomic Institute - University of Zurich, revised Sep 2005.
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    5. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    6. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 115-136, Summer.
    7. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
    8. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
    9. Schwarze, Johannes & Harpfer, Marco, 2007. "Are people inequality averse, and do they prefer redistribution by the state?: Evidence from German longitudinal data on life satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 233-249, April.
    10. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
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    Cited by:

    1. Akay, Alpaslan & Bargain, Olivier & Zimmermann, Klaus F., 2012. "Relative concerns of rural-to-urban migrants in China," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 421-441.
    2. Julia Gelatt, 2013. "Looking Down or Looking Up: Status and Subjective Well-Being among Asian and Latino Immigrants in the United States," International Migration Review, Wiley Blackwell, vol. 47(1), pages 39-75, March.

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    More about this item

    Keywords

    reference standard; social comparison; immigration; Germany;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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