IDEAS home Printed from https://ideas.repec.org/p/shf/wpaper/2015006.html
   My bibliography  Save this paper

The Relative Income Hypothesis: A comparison of methods

Author

Listed:
  • Sarah Brown

    (Department of Economics, University of Sheffield)

  • Daniel Gray

    (Department of Economics, University of Sheffield)

  • Jennifer Roberts

    (Department of Economics, University of Sheffield)

Abstract

Empirical studies of the relative income hypothesis have found both positive and negative effects of relative income on utility. Differences in data and methods make the results difficult to compare. To facilitate comparisons we explore the problem using a large UK household panel. Our findings highlight the sensitivity of the estimated relative income effect to the definition of the reference group and to the estimation strategy employed. Given the increasing attention paid to interdependent preferences in the economics literature, and the implications for problems such as the measurement of societal welfare, our findings are of interest for both the theoretical and empirical study of the relative income hypothesis.

Suggested Citation

  • Sarah Brown & Daniel Gray & Jennifer Roberts, 2015. "The Relative Income Hypothesis: A comparison of methods," Working Papers 2015006, The University of Sheffield, Department of Economics.
    • Handle: RePEc:shf:wpaper:2015006
    as

    Download full text from publisher

    File URL: http://www.sheffield.ac.uk/economics/research/serps/articles/2015_006
    File Function: First version, March 2015
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Claudia Senik, 2008. "Ambition and Jealousy: Income Interactions in the ‘Old’ Europe versus the ‘New’ Europe and the United States," Economica, London School of Economics and Political Science, vol. 75(299), pages 495-513, August.
    2. David Card & Alexandre Mas & Enrico Moretti & Emmanuel Saez, 2012. "Inequality at Work: The Effect of Peer Salaries on Job Satisfaction," American Economic Review, American Economic Association, vol. 102(6), pages 2981-3003, October.
    3. Clark, Andrew E & Oswald, Andrew J, 1994. "Unhappiness and Unemployment," Economic Journal, Royal Economic Society, vol. 104(424), pages 648-659, May.
    4. 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.
    5. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    6. Andrew E. Clark & Nicolai Kristensen & Niels Westergård-Nielsen, 2009. "Economic Satisfaction and Income Rank in Small Neighbourhoods," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 519-527, 04-05.
    7. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    8. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    9. Eiji Mangyo & Albert Park, 2011. "Relative Deprivation and Health: Which Reference Groups Matter?," Journal of Human Resources, University of Wisconsin Press, vol. 46(3), pages 459-481.
    10. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    11. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2099-2123, August.
    12. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. We don't want economic growth
      by chris in Stumbling and Mumbling on 2020-01-26 13:40:47

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carolyn Fischer & William A. Pizer, 2019. "Horizontal Equity Effects in Energy Regulation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 6(S1), pages 209-237.
    2. Fluhrer, Svenja & Kraehnert, Kati, 2022. "Sitting in the same boat: Subjective well-being and social comparison after an extreme weather event," Ecological Economics, Elsevier, vol. 195(C).
    3. Laetitia Hauret & Donald R. Williams, 2019. "Relative Income and Pay Satisfaction: Further Evidence on the Role of the Reference Group," Journal of Happiness Studies, Springer, vol. 20(1), pages 307-329, January.
    4. Thomas Dufhues & Judith Möllers & Antje Jantsch & Gertrud Buchenrieder & Laura Camfield, 2023. "Don’t Look Up! Individual Income Comparisons and Subjective Well-Being of Students in Thailand," Journal of Happiness Studies, Springer, vol. 24(2), pages 477-503, February.
    5. Zubrickas, Robertas, 2023. "The relative income effect and labor supply," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 176-184.
    6. Eiji Yamamura, 2021. "Where do I rank? Am I happy?: learning income position and subjective-wellbeing in an internet experiment," Papers 2107.11185, arXiv.org.
    7. Zhijian Zhang & Xueyuan Wang, 2021. "Ambition or Jealousy? It Depends on Whom you are Compared with," Journal of Happiness Studies, Springer, vol. 22(3), pages 1189-1215, March.
    8. Xiangdan Piao & Xinxin Ma & Tetsuya Tsurumi & Shunsuke Managi, 2022. "Social Capital, Negative Event, Life Satisfaction and Sustainable Community: Evidence from 37 Countries," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 17(3), pages 1311-1330, June.
    9. Muna Shifa & Murray Leibbrandt, 2018. "Relative Economic Position and Subjective Well-Being in a Poor Society: Does Relative Position Indicator Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(2), pages 611-630, September.
    10. HAURET Laetitia & WILLIAMS Donald R., 2018. "Time-in-Labour-Market and the Reference Group," LISER Working Paper Series 2018-02, Luxembourg Institute of Socio-Economic Research (LISER).
    11. Fumagalli, Elena & Fumagalli, Laura, 2022. "Subjective well-being and the gender composition of the reference group: Evidence from a survey experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 194(C), pages 196-219.
    12. HAURET Laetitia & WILLIAMS Donald R., 2017. "Choice of colleagues as reference group for wage comparison: does group composition matter?," LISER Working Paper Series 2017-10, Luxembourg Institute of Socio-Economic Research (LISER).
    13. David Brady & Michaela Curran & Richard Carpiano, 2023. "A test of the predictive validity of relative versus absolute income for self-reported health and well-being in the United States," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 48(26), pages 775-808.
    14. La, Binh Thanh & Lim, Steven & Cameron, Michael P. & Tran, Tuyen Quang & Nguyen, Minh Thi, 2021. "Absolute income, comparison income and subjective well-being in a transitional country: Panel evidence from Vietnamese household surveys," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 368-385.
    15. Yongwei Chen & Dahai Fu & Xinyue Ye, 2021. "Income comparison and happiness: The role of fair income distribution," Australian Economic Papers, Wiley Blackwell, vol. 60(1), pages 41-63, March.
    16. Paul Fisher & Omar Hussein, 2023. "Understanding Society: the income data," Fiscal Studies, John Wiley & Sons, vol. 44(4), pages 377-397, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    2. Andrew E. Clark & Claudia Senik, 2010. "Will GDP growth increase happiness in developing countries?," PSE Working Papers halshs-00564985, HAL.
    3. Filiz Gülal & Adam Ayaita, 2020. "The Impact of Minimum Wages on Well-Being: Evidence from a Quasi-experiment in Germany," Journal of Happiness Studies, Springer, vol. 21(7), pages 2669-2692, October.
    4. Li, Linyang, 2018. "Financial inclusion and poverty: The role of relative income," China Economic Review, Elsevier, vol. 52(C), pages 165-191.
    5. Senik, Claudia, 2009. "Direct evidence on income comparisons and their welfare effects," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 408-424, October.
    6. Brown, Sarah & Gray, Daniel, 2016. "Household finances and well-being in Australia: An empirical analysis of comparison effects," Journal of Economic Psychology, Elsevier, vol. 53(C), pages 17-36.
    7. Wen-Chun Chang, 2013. "Climbing up the Social Ladders: Identity, Relative Income, and Subjective Well-being," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 113(1), pages 513-535, August.
    8. Dolan, Paul & Foy, Chloe & Kavetsos, Georgios & Kudrna, Laura, 2021. "Faster, higher, stronger… and happier? Relative achievement and marginal rank effects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).
    9. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2006. "Income and happiness: Evidence, explanations and economic implications," PSE Working Papers halshs-00590436, HAL.
    10. Ada Ferrer-i-Carbonell, 2013. "Happiness economics," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(1), pages 35-60, March.
    11. Caporale, Guglielmo Maria & Georgellis, Yannis & Tsitsianis, Nicholas & Yin, Ya Ping, 2009. "Income and happiness across Europe: Do reference values matter?," Journal of Economic Psychology, Elsevier, vol. 30(1), pages 42-51, February.
    12. repec:hal:spmain:info:hdl:2441/3ile1g7sqe8kfpi2d1e7jp82im is not listed on IDEAS
    13. Atsebi, Jean-Marc Bédhat & Ferrer-i-Carbonell, Ada, 2019. "Relative Deprivation in Tanzania," IZA Discussion Papers 12719, Institute of Labor Economics (IZA).
    14. Akay, Alpaslan & Bargain, Olivier B. & Giulietti, Corrado & Robalino, Juan D. & Zimmermann, Klaus F., 2016. "Remittances and relative concerns in rural China," China Economic Review, Elsevier, vol. 37(C), pages 191-207.
    15. Godechot, Olivier & Senik, Claudia, 2015. "Wage comparisons in and out of the firm. Evidence from a matched employer–employee French database," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 395-410.
    16. Korthals, R.A., 2012. "Selection and tracking in secondary education : a cross country analysis of student performance and educational opportunities," Research Memorandum 049, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    17. Atsebi, Jean-Marc Bédhat & Ferrer-i-Carbonell, Ada, 2022. "Relative deprivation in Tanzania: Relative concerns and empathy," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 389-408.
    18. Fischer, Justina A. V. & Torgler, Benno, 2007. "Social Captial and Relative Income Concerns: Evidence from 26 Countries," Berkeley Olin Program in Law & Economics, Working Paper Series qt8sv0k59c, Berkeley Olin Program in Law & Economics.
    19. Diriwaechter, Patric & Shvartsman, Elena, 2018. "The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 116-140.
    20. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    21. Mohsen Javdani & Brian Krauth, 2020. "Job satisfaction and co‐worker pay in Canadian firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 212-248, February.

    More about this item

    Keywords

    relative income; reference group; subjective well-being;
    All these keywords.

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:shf:wpaper:2015006. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mike Crabtree (email available below). General contact details of provider: https://edirc.repec.org/data/desheuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.