IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp4390.html
   My bibliography  Save this paper

Life Satisfaction and Relative Income: Perceptions and Evidence

Author

Listed:
  • Mayraz, Guy

    (CEP, London School of Economics)

  • Wagner, Gert G.

    (Max Planck Institute for Human Development)

  • Schupp, Jürgen

    (DIW Berlin)

Abstract

Using a unique dataset we study both the actual and self-perceived relationship between subjective well-being and income comparisons against a wide range of potential comparison groups, enabling us to investigate a broader range of questions than in previous studies. In questions inserted into a 2008 module of the German-Socio Economic Panel Study we ask subjects to report (a) how their income compares to various groups, such a co-workers, friends, and neighbours, and (b) how important these income comparisons are to them. We find substantial gender differences, with income comparisons being much better predictors of subjective well-being in men than in women. Generic (same-gender) comparisons are the most important, followed by within profession comparisons. Once generic and within-profession comparisons are controlled for, income relative to neighbours has a negative coefficient, implying that living in a high-income neighbourhood increases happiness. The perceived importance of income comparisons is found to be uncorrelated with its actual relationship to subjective well-being, suggesting that people are unconscious of its real impact. Subjects who judge comparisons to be important are, however, significantly less happy than subjects who see income comparisons as unimportant. Finally, the marginal effect of relative income on subjective well-being does not depend on whether a subject is below or above the reference group income.

Suggested Citation

  • Mayraz, Guy & Wagner, Gert G. & Schupp, Jürgen, 2009. "Life Satisfaction and Relative Income: Perceptions and Evidence," IZA Discussion Papers 4390, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4390
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp4390.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Conchita D’Ambrosio & Joachim Frick, 2007. "Income Satisfaction and Relative Deprivation: An Empirical Link," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 81(3), pages 497-519, May.
    2. AndrewE. Clark & Claudia Senik, 2010. "Who Compares to Whom? The Anatomy of Income Comparisons in Europe," Economic Journal, Royal Economic Society, vol. 120(544), pages 573-594, May.
    3. Robert H. Frank, 2005. "Positional Externalities Cause Large and Preventable Welfare Losses," American Economic Review, American Economic Association, vol. 95(2), pages 137-141, May.
    4. 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.
    5. Betsey Stevenson & Justin Wolfers, 2008. "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 1-102.
    6. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 963-1002.
    7. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
    8. Claudia Senik, 2008. "Direct evidence on income comparisons and their welfare effects," Working Papers halshs-00588023, HAL.
    9. Layard, R. & Mayraz, G. & Nickell, S., 2008. "The marginal utility of income," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1846-1857, August.
    10. 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.
    11. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
    12. KNIGHT, John & SONG, Lina & GUNATILAKA, Ramani, 2009. "Subjective well-being and its determinants in rural China," China Economic Review, Elsevier, vol. 20(4), pages 635-649, December.
    13. 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.
    14. Joerg Dittmann & Jan Goebel, 2010. "Your House, Your Car, Your Education: The Socioeconomic Situation of the Neighborhood and its Impact on Life Satisfaction in Germany," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 96(3), pages 497-513, May.
    15. Easterlin, Richard A., 1974. "Does Economic Growth Improve the Human Lot? Some Empirical Evidence," MPRA Paper 111773, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fengyu Wu, 2020. "An Examination of the Effects of Consumption Expenditures on Life Satisfaction in Australia," Journal of Happiness Studies, Springer, vol. 21(8), pages 2735-2771, December.
    2. 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).
    3. Benjamin Schalembier, 2016. "The Impact of Exposure to Other Countries on Life Satisfaction: An International Application of the Relative Income Hypothesis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(1), pages 221-239, August.
    4. Santiago Budria, 2013. "Are Relative-Income Effects Constant Across the Well-Being Distribution?," Journal of Happiness Studies, Springer, vol. 14(4), pages 1379-1408, August.
    5. Elena Bárcena-Martín & Alexandra Cortés-Aguilar & Ana I. Moro-Egido, 2017. "Social Comparisons on Subjective Well-Being: The Role of Social and Cultural Capital," Journal of Happiness Studies, Springer, vol. 18(4), pages 1121-1145, August.
    6. Abel Brodeur & Sarah Flèche, 2019. "Neighbors' Income, Public Goods, and Well‐Being," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 65(2), pages 217-238, June.
    7. 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..
    8. McBride, Michael, 2010. "Money, happiness, and aspirations: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 74(3), pages 262-276, June.
    9. Hudson, Eibhlin, 2013. "Does relative material wealth matter for child and adolescent life satisfaction?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 46(C), pages 38-47.
    10. Hajdu, Tamás & Hajdu, Gábor, 2011. "A hasznosság és a relatív jövedelem kapcsolatának vizsgálata magyar adatok segítségével [Examining the relation of utility and relative income using Hungarian data]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 56-73.
    11. Silvia Maja Melzer & Ruud J. Muffels, 2012. "Migrant's Pursuit of Happiness: The Impact of Adaption, Social Comparison and Relative Deprivation; Evidence from a 'Natural' Experiment," SOEPpapers on Multidisciplinary Panel Data Research 448, DIW Berlin, The German Socio-Economic Panel (SOEP).
    12. Chenghua Guan & Yingjie Qiu & Ruopeng An, 2019. "Relative Income and Life Satisfaction among Chinese Adults," Sustainability, MDPI, vol. 11(20), pages 1-12, October.
    13. Kaizhi Yu & Yun Zhang & Hong Zou & Chenchen Wang, 2019. "Absolute Income, Income Inequality and the Subjective Well-Being of Migrant Workers in China: Toward an Understanding of the Relationship and Its Psychological Mechanisms," IJERPH, MDPI, vol. 16(14), pages 1-27, July.
    14. Demougin, Dominique & Upton, Harvey, 2023. "Relative income concerns and the Easterlin Paradox: A theoretical framework," Economic Modelling, Elsevier, vol. 127(C).
    15. Diriwaechter, Patric & Shvartsman, Elena, 2018. "The anticipation and adaptation effects of intra- and interpersonal wage changes on job satisfaction," Journal of Economic Behavior & Organization, Elsevier, vol. 146(C), pages 116-140.
    16. Montizaan, Raymond M. & Vendrik, Maarten C.M., 2014. "Misery Loves Company: Exogenous shocks in retirement expectations and social comparison effects on subjective well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 1-26.
    17. Andrew E. Clark & Claudia Senik & Katsunori Yamada, 2022. "The Joneses in Japan: income comparisons and financial satisfaction," The Japanese Economic Review, Springer, vol. 73(2), pages 351-372, April.
    18. Yamada, Katsunori & Sato, Masayuki, 2013. "Another avenue for anatomy of income comparisons: Evidence from hypothetical choice experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 35-57.
    19. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute of Labor Economics (IZA).
    20. Eduardo Pérez-Asenjo, 2011. "If happiness is relative, against whom do we compare ourselves? Implications for labour supply," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(4), pages 1411-1442, October.

    More about this item

    Keywords

    income comparisons; relative income; life satisfaction; German Socio Economic Panel Study; SOEP;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4390. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.