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Income Rank and Upward Comparisons

Author

Listed:
  • Boyce, Christopher J.

    (Department of Psychology, University of Warwick)

  • Brown, Gordon D.A.

    (Department of Psychology, University of Warwick)

Abstract

Many studies have argued that relative income predicts individual well-being. More recently, it has been suggested that the relative rank of an individual’s income, rather than how that income compares to a mean or reference income, is important. Here the relative rank hypothesis is examined along with the additional hypothesis that individuals compare their incomes predominantly with those of slightly higher earners. A study of over 12,000 British adults using the British Household Panel Survey (a) confirms the importance of rank and (b) finds evidence that individuals compare upwards and to those most similar. This paper appears to be the first to show in fixed effect well-being equations that the influence of rank is more important than the influence of relative pay.

Suggested Citation

  • Boyce, Christopher J. & Brown, Gordon D.A., 2008. "Income Rank and Upward Comparisons," The Warwick Economics Research Paper Series (TWERPS) 883, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:883
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_883.pdf
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    References listed on IDEAS

    as
    1. 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.
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    3. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
    4. 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.
    5. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
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    Cited by:

    1. FitzRoy, Felix & Nolan, Michael A. & Steinhardt, Max F., 2011. "Age, Life-Satisfaction, and Relative Income: Insights from the UK and Germany," IZA Discussion Papers 6045, Institute of Labor Economics (IZA).
    2. Felix R., FitzRoy & Michael, Nolan & Max F., Steinhardt, 2013. "Age, Life-satisfaction, and Relative Income – Insights from the UK and Germany," SIRE Discussion Papers 2013-51, Scottish Institute for Research in Economics (SIRE).

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    More about this item

    Keywords

    Rank ; social comparison ; life satisfaction ; relative income ; BHPS;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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