So Far so Good: Age, Happiness, and Relative Income
In a simple 2-period model of relative income under uncertainty, higher comparison income for the younger cohort can signal higher or lower expected lifetime relative income, and hence either increase or decrease well-being. With data from the German Socio-Economic Panel and the British Household Panel Survey, we first confirm the standard negative effects of comparison income on life satisfaction with all age groups, and many controls. However when we split the West German sample by age we find a positive significant effect of comparison income in the under 45s, and the usual negative effect only in the over 45 group. With the same split in UK and East German data, comparison income loses significance, which is consistent with the model prediction for the younger group. Our results provide first evidence that the standard aggregation with only a quadratic control for age can obscure major differences in the effects of relative income.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.diw.de/en/soep
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Veblen, Thorstein, 1899. "The Theory of the Leisure Class," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1899.
- Clark, Andrew E. & Oswald, Andrew J., 1996.
"Satisfaction and comparison income,"
Journal of Public Economics,
Elsevier, vol. 61(3), pages 359-381, September.
- Blanchflower, David G. & Oswald, Andrew J., 2007.
"Is Well-being U-Shaped over the Life Cycle?,"
The Warwick Economics Research Paper Series (TWERPS)
826, University of Warwick, Department of Economics.
- Blanchflower, David G. & Oswald, Andrew J., 2007. "Is Well-Being U-Shaped over the Life Cycle?," IZA Discussion Papers 3075, Institute for the Study of Labor (IZA).
- David G. Blanchflower & Andrew Oswald, 2007. "Is Well-being U-Shaped over the Life Cycle?," NBER Working Papers 12935, National Bureau of Economic Research, Inc.
- Thorstein Veblen, 1899. "Mr. Cummings's Strictures on "The Theory of the Leisure Class"," Journal of Political Economy, University of Chicago Press, vol. 8, pages 106.
- Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007.
"The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements,"
SOEPpapers on Multidisciplinary Panel Data Research
1, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
- Hirschman, Albert O & Rothschild, Michael, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic Development; with a Mathematical Appendix," The Quarterly Journal of Economics, MIT Press, vol. 87(4), pages 544-66, November.
- 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.
- Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
- Fliessbach, Klaus & Weber, Bernd & Trautner, P. & Dohmen, Thomas J. & Sunde, Uwe & Elger, C. E. & Falk, Armin, 2007. "Social comparison affects reward-related brain activity in the human ventral striatum," Munich Reprints in Economics 20362, University of Munich, Department of Economics.
- Drichoutis, Andreas C. & Nayga Jr., Rodolfo M. & Lazaridis, Panagiotis, 2010. "Do reference values matter? Some notes and extensions on "income and happiness across Europe"," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 479-486, August.
- Clark, Andrew E. & Kristensen, Nicolai & Westergård-Nielsen, Niels C., 2007.
"Job Satisfaction and Co-worker Wages: Status or Signal?,"
IZA Discussion Papers
3073, Institute for the Study of Labor (IZA).
- 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.
- Claudia Senik, 2007. "Ambition and jealousy. Income interactions in the "Old" Europe versus the "New" Europe and the United States," PSE Working Papers halshs-00590828, HAL.
- 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, 07.
- Richard Layard & Guy Mayraz & Stephen Nickell, 2009.
"Does Relative Income Matter?: Are the Critics Right?,"
SOEPpapers on Multidisciplinary Panel Data Research
210, DIW Berlin, The German Socio-Economic Panel (SOEP).
- Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does Relative Income Matter? Are the Critics Right?," CEP Discussion Papers dp0918, Centre for Economic Performance, LSE.
- Richard Layard & Guy Mayraz & Stephen Nickell, 2009. "Does relative income matter? Are the critics right?," LSE Research Online Documents on Economics 28594, London School of Economics and Political Science, LSE Library.
- 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.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:diw:diwsop:diw_sp415. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek)
If references are entirely missing, you can add them using this form.