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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 Clark & Fabrice Etilé & Fabien Postel-Vinay & Claudia Senik & Karine Van der Straeten, 2005. "Heterogeneity in Reported Well-Being: Evidence from Twelve European Countries," Economic Journal, Royal Economic Society, vol. 115(502), pages 118-132, 03.
  2. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
  3. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  4. 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.
  5. 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.
  6. 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.
  7. Felicia Huppert & Nic Marks & Andrew 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," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 91(3), pages 301-315, May.
  8. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2008. "Lags And Leads in Life Satisfaction: a Test of the Baseline Hypothesis," Economic Journal, Royal Economic Society, vol. 118(529), pages 222-243, June.
  9. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
  10. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  11. 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, July.
  12. 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.
  13. 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.
  14. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 963-1002.
  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. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
  17. AndrewE. Clark & Nicolai Kristensen & Niels Westergård-Nielsen, 2009. "Job Satisfaction and Co-worker Wages: Status or Signal?," Economic Journal, Royal Economic Society, vol. 119(536), pages 430-447, 03.
  18. Claudia Senik, 2009. "Direct Evidence on Income Comparisons and their Welfare Effects," Post-Print hal-00696621, HAL.
  19. 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.
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