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Income Comparisons and Non-Cognitive Skills

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  • Budría, Santiago

    ()
    (University of Madeira)

  • Ferrer-i-Carbonell, Ada

    ()
    (IAE Barcelona (CSIC))

Abstract

People gain utility from occupying a higher ranked position in the income distribution of the reference group. This paper investigates whether these gains depend on an individual's set of non-cognitive skills. Using the 2000-2008 waves of the German Socioeconomic Panel dataset (SOEP), a subjective question on Life Satisfaction, and three different sets of non-cognitive skills indicators, we find significant and robust differences across skills groups. People who are more neurotic, extravert and have low external locus of control and low negative reciprocity are more sensitive to their individual position in the economic ladder. By contrast, the Life Satisfaction reaction to changes in economic status is significantly lower among individuals who score high (low) in negative (positive) reciprocity, and are at the bottom of the distribution of neuroticism, extraversion. The heterogeneity on the importance of income comparisons needs to be taken into account when, for example, introducing them into economic models, predicting individuals' behaviour, or making welfare judgments.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6419.

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Length: 31 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6419

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Keywords: life satisfaction; income comparisons; personality traits;

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Cited by:
  1. Hendrik Schmitz & Matthias Westphal, 2013. "Short- and Medium-term Effects of Informal Care Provision on Health," Ruhr Economic Papers 0426, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Kamhöfer, Daniel & Schmitz, Hendrik, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79910, Verein für Socialpolitik / German Economic Association.
  3. Pannenberg, Markus & Goerke, Laszlo, 2013. "Direct Evidence on Income Comparisons and Subjective Well-Being," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79799, Verein für Socialpolitik / German Economic Association.

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