Fairness matters: Objective, perceived, and fairness-based inequality in relation to subjective well-being

The association between inequality and subjective well-being depends on which aspect of inequality is captured. Objective indicators based on income data, subjective assessments of the income distribution, and normative fairness perceptions each tap into different facets of how inequality is experienced and evaluated. Our paper starts from the hypothesis that perceived income inequality, particularly when it includes a normative fairness component, better explains subjective well-being than objective measures of inequality. Not only do people systematically fail to locate their income position within an objectively observable income distribution, but income inequality underlies a personal assessment regarding the fairness in the processes leading to it. The various factors influencing subjective perceptions of income distribution, including perceived fairness and the perceived possibility of upward mobility ultimately affect well-being outcomes. Using a unique data set from Thailand, we compare objectively measured community-level Gini coefficients with two perceived inequality measures. Based on effect sizes and model fit statistics, the fairness-based perceived inequality measure provides the strongest association with subjective well-being. We explore how perceptions of income distribution, and of mobility opportunities within it, are influenced by broader contextual factors. These perceptions can be associated with distinct emotional responses: when inequality is seen as fair, it may foster optimism and upward aspirations (the tunnel effect); when seen as unfair, it may provoke frustration or resentment (the relative deprivation effect).