Relative Income and Income Satisfaction: An Experimental Study

Kai Liu () and Xianghong Wang ()
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Kai Liu: Renmin University of China
Xianghong Wang: Renmin University of China

Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, 2017, vol. 132, issue 1, No 20, 395-409

Abstract: Abstract This paper examines the impact of relative income on income satisfaction with given absolute income. We conducted an experiment in China where participants earned three different levels of income according to their relative performance in a task. While the treatment group was informed about their relative income, the control group only knew their own absolute income. We found that while controlling for absolute income and other factors, information about relative income increases the satisfaction of the high-income group and reduces the satisfaction of the low-income group. Relative income may interact with individual characteristics, such as gender, to affect income satisfaction. We also found that relative income treatment significantly increases income satisfaction inequality, primarily by causing social comparisons among different income groups, which has some welfare implications.

Keywords: Relative income; Income satisfaction; Inequality; Subjective wellbeing; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D03 D31 I30 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11205-016-1266-9

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