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

Listed author(s):
  • Heinz Welsch

    ()

    (University of Oldenburg, Department of Economics)

  • Jan Kühling

    ()

    (University of Oldenburg, Department of Economics)

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.

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File URL: http://www.uni-oldenburg.de/fileadmin/user_upload/wire/fachgebiete/vwl/V-356-13.pdf
File Function: First version, 2013
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Paper provided by University of Oldenburg, Department of Economics in its series Working Papers with number V-356-13.

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Length: 27 pages
Date of creation: Apr 2013
Date of revision: Apr 2013
Publication status: Published in Oldenburg Working Papers V-356-13
Handle: RePEc:old:dpaper:356
Contact details of provider: Postal:
26111 Oldenburg

Phone: +49 441 798-4107
Fax: +49 441 798-4116
Web page: http://www.vwl.uni-oldenburg.de/
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