Life Satisfaction and Relative Income: Perceptions and Evidence

Guy Mayraz, Jürgen Schupp () and Gert G. Wagner ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: Using a unique dataset we study both the actual and self-perceived relationship between subjectivewell-being and income comparisons against a wide range of potential comparison groups, enabling usto investigate a broader range of questions than in previous studies. In questions inserted into a 2008module of the German-Socio Economic Panel Study we ask subjects to report (a) how their incomecompares to various groups, such a co-workers, friends, and neighbours, and (b) how important theseincome comparisons are to them. We find substantial gender differences, with income comparisonsbeing 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 andwithin-profession comparisons are controlled for, income relative to neighbours has a negativecoefficient, implying that living in a high-income neighbourhood increases happiness. The perceivedimportance of income comparisons is found to be uncorrelated with its actual relationship tosubjective well-being, suggesting that people are unconscious of its real impact. Subjects who judgecomparisons to be important are, however, significantly less happy than subjects who see incomecomparisons as unimportant. Finally, the marginal effect of relative income on subjective well-beingdoes not depend on whether a subject is below or above the reference group income.

Keywords: Income Comparisons; Relative Income; Life Satisfaction; German Socio Economic Panel; SOEP (search for similar items in EconPapers)
JEL-codes: D31 D62 D63 I3 I31 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hap
Date: 2009-07
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Related works:
Working Paper: Life Satisfaction and Relative Income: Perceptions and Evidence (2009)
Working Paper: Life Satisfaction and Relative Income: Perceptions and Evidence (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0938

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