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Income Comparisons and Non-cognitive Skills

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  • Santi Budria
  • Ada Ferrer-i-Carbonell

Abstract

People gain utility from occupying a higher ranked position in the income distribution of the reference group. This paper investigates whether these gains depend on an individual's set of non-cognitive skills. Using the 2000-2008 waves of the German Socioeconomic Panel dataset (SOEP), a subjective question on Life Satisfaction, and three different sets of non-cognitive skills indicators, we find significant and robust differences across skills groups. People who are more neurotic, extravert and have low external locus of control and low negative reciprocity are more sensitive to their individual position in the economic ladder. By contrast, the Life Satisfaction reaction to changes in economic status is significantly lower among individuals who score high (low) in negative (positive) reciprocity, and are at the bottom of the distribution of neuroticism, extraversion. The heterogeneity on the importance of income comparisons needs to be taken into account when, for example, introducing them into economic models, predicting individuals' behaviour, or making welfare judgments.

Suggested Citation

  • Santi Budria & Ada Ferrer-i-Carbonell, 2012. "Income Comparisons and Non-cognitive Skills," SOEPpapers on Multidisciplinary Panel Data Research 441, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp441
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Income Comparisons and Non-Cognitive Skills
      by maximorossi in NEP-LTV blog on 2012-05-07 18:05:30

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    1. repec:eee:jhecon:v:56:y:2017:i:c:p:1-18 is not listed on IDEAS
    2. Pannenberg, Markus & Goerke, Laszlo, 2013. "Direct Evidence on Income Comparisons and Subjective Well-Being," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79799, Verein für Socialpolitik / German Economic Association.
    3. Schmitz, Hendrik & Westphal, Matthias, 2013. "Short- and Medium-term Effects of Informal Care Provision on Health," Ruhr Economic Papers 426, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Ana I. Moro Egido & Maria Navarro & Ángeles Sánchez-Domínguez, 2017. "Changes in Subjective Well-Being Over Time in Germnay," ThE Papers 17/05, Department of Economic Theory and Economic History of the University of Granada..
    5. Cuesta, Maite Blázquez & Budría, Santiago, 2015. "Income deprivation and mental well-being: The role of non-cognitive skills," Economics & Human Biology, Elsevier, vol. 17(C), pages 16-28.
    6. Schmitz, Hendrik & Westphal, Matthias, 2015. "Short- and medium-term effects of informal care provision on female caregivers’ health," Journal of Health Economics, Elsevier, vol. 42(C), pages 174-185.
    7. Daniel A. Kamhöfer & Hendrik Schmitz, 2013. "Analyzing Zero Returns to Education in Germany: Heterogeneous Effects and Skill Formation," SOEPpapers on Multidisciplinary Panel Data Research 598, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Elena Bárcena-Martín & Cortés Aguilar Alexandra & Ana I. Moro Egido, 2013. "The role of proximity and social comparisons on subjective well-being," ThE Papers 13/10, Department of Economic Theory and Economic History of the University of Granada..
    9. Rodrigo Montero & Diego Vásquez, 2015. "Job Satisfaction and Reference Wages: Evidence for a Developing Country," Journal of Happiness Studies, Springer, vol. 16(6), pages 1493-1507, December.
    10. Kesavayuth, Dusanee & Rosenman, Robert E. & Zikos, Vasileios, 2015. "Personality and health satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 54(C), pages 64-73.
    11. Schmitz, Hendrik & Westphal, Matthias, 2017. "Informal care and long-term labor market outcomes," Journal of Health Economics, Elsevier, vol. 56(C), pages 1-18.
    12. repec:zbw:rwirep:0426 is not listed on IDEAS
    13. Hendrik Schmitz & Matthias Westphal, 2013. "Short- and Medium-term Effects of Informal Care Provision on Health," Ruhr Economic Papers 0426, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    14. repec:eee:ecmode:v:72:y:2018:i:c:p:122-131 is not listed on IDEAS
    15. repec:spr:jhappi:v:18:y:2017:i:4:d:10.1007_s10902-016-9768-3 is not listed on IDEAS

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    Keywords

    Life satisfaction; income comparisons; personality traits;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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