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Who compares to whom? The anatomy of income comparisons in Europe

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  • Andrew E. Clark

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Institute for the Study of Labor - IZA, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Claudia Senik

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Institute for the Study of Labor - IZA, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris, UP4 - Université Paris 4, Paris-Sorbonne - Université Paris IV - Paris Sorbonne - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique, IUF - Institut Universitaire de France - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)

Abstract

This paper provides unprecedented direct evidence from large-scale survey data on both the intensity (how much?) and direction (to whom?) of income comparisons. Income comparisons are considered to be at least somewhat important by three-quarters of Europeans. They are associated with both lower levels of subjective well-being and a greater demand for income redistribution. The rich compare less and are more happy than average when they do, which latter is consistent with relative income theory. With respect to the direction of comparisons, colleagues are the most frequently-cited reference group. Those who compare to colleagues are happier than those who compare to other benchmarks; comparisons to friends are both less widespread and are associated with the lowest well-being scores. This is consistent with information effects, as colleagues income arguably contains more information about the individual s own future prospects than do the incomes of other reference groups. Last, there is some evidence that reference groups are endogenous, with individuals tending to compare to those with whom they interact the most often.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00586036.

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Date of creation: Sep 2009
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Handle: RePEc:hal:psewpa:halshs-00586036

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Keywords: income comparisons ; relative income ; reference groups ; happiness ; redistribution ; European Social Survey;

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  1. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2003. "The Macroeconomics of Happiness," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 809-827, November.
  2. 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.
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