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Income Comparisons, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling

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  • Heinz Welsch
  • Jan Kühling

Abstract

Drawing on the distinction between envy and signaling effects in income comparison, this paper uses 307,465 observations for subjective well-being and its covariates from Germany, 1990-2009, to study whether the nature of income comparison has changed in the process of economic development, and how such changes are related to changes in the nature of income formation. By conceptualizing a person's comparison income as the income predicted by an earnings equation, we find that, while in 1990-1999 envy has been the dominant concern in West Germany and signaling the dominant factor in East Germany, income comparison was non-existing in 2000-2009. We also find that the earnings equation reflects people's ability more accurately in the second than in the first period. Together, these findings suggest that comparing one's income with people of the same ability is important only when ability is insufficiently reflected in own income.

Suggested Citation

  • Heinz Welsch & Jan Kühling, 2013. "Income Comparisons, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling," SOEPpapers on Multidisciplinary Panel Data Research 552, DIW Berlin, The German Socio-Economic Panel (SOEP).
    • Handle: RePEc:diw:diwsop:diw_sp552
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    Cited by:

    1. Eiji Yamamura, 2021. "Where do I rank? Am I happy?: learning income position and subjective-wellbeing in an internet experiment," Papers 2107.11185, arXiv.org.
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    3. Zhijian Zhang & Xueyuan Wang, 2021. "Ambition or Jealousy? It Depends on Whom you are Compared with," Journal of Happiness Studies, Springer, vol. 22(3), pages 1189-1215, March.
    4. Magnani, Elisabetta & Zhu, Rong, 2018. "Does kindness lead to happiness? Voluntary activities and subjective well-being," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 77(C), pages 20-28.

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    More about this item

    Keywords

    Income comparison; envy; signaling; subjective well-being; income formation;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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