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Who Compares to Whom? The Anatomy of Income Comparisons in Europe

Listed author(s):
  • Clark, Andrew E.
  • Senik, Claudia

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 wellbeing 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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File URL: http://www.cepremap.fr/depot/docweb/docweb0907.pdf
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Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 0907.

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Length: 33 pages
Date of creation: Sep 2009
Handle: RePEc:cpm:docweb:0907
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  1. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2007. "Lags and leads in life satisfaction: a test of the baseline hypothesis," LSE Research Online Documents on Economics 19656, London School of Economics and Political Science, LSE Library.
  2. Alesina, Alberto F & Di Tella, Rafael & MacCulloch, Robert, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," CEPR Discussion Papers 2877, C.E.P.R. Discussion Papers.
  3. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles," Post-Print halshs-00754299, HAL.
  4. Falk, Armin & Knell, Markus, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," CEPR Discussion Papers 4459, C.E.P.R. Discussion Papers.
  5. Andrew E. Clark & Nicolai Kristensen & Niels Westergaard-Nielsen, 2009. "Job satisfaction and co-worker wages: status or signal?," Post-Print halshs-00754388, HAL.
  6. Claudia Senik, 2008. "Direct evidence on income comparisons and their welfare effects," PSE Working Papers halshs-00588023, HAL.
  7. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  8. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  9. Felicia Huppert & Nic Marks & Andrew E. Clark & Johannes Siegrist & Alois Stutzer & Joar Vittersø & Morten Wahrendorf, 2009. "Measuring well-being across Europe: description of the ESS well-being module and preliminary findings," Post-Print halshs-00754379, HAL.
  10. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 1999. "The macroeconomics of happiness," ZEI Working Papers B 03-1999, University of Bonn, ZEI - Center for European Integration Studies.
  11. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  12. Andrew E. Clark & Fabrice Etilé & Fabien Postel-Vinay & Claudia Senik & Karine Van der Straeten, 2004. "Heterogeneity in reported well-being: evidence from twelve european countries," DELTA Working Papers 2004-01, DELTA (Ecole normale supérieure).
  13. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  14. 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.
  15. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  16. 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.
  17. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
  18. Claudia Senik, 2009. "Direct Evidence on Income Comparisons and their Welfare Effects," Post-Print hal-00696621, HAL.
  19. Albert O. Hirschman & Michael Rothschild, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic DevelopmentWith A Mathematical Appendix," The Quarterly Journal of Economics, Oxford University Press, vol. 87(4), pages 544-566.
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