Does Relative Income Matter?: Are the Critics Right?

Richard Layard, Guy Mayraz () and Stephen Nickell

No 210, SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP)

Abstract: Do other peoples' incomes reduce the happiness which people in advanced countries experience from any given income? And does this help to explain why in the U.S., Germany and some other advanced countries, happiness has been constant for many decades? The answer to both questions is "Yes". We provide 4 main pieces of evidence. 1) In the U.S. General Survey (repeated samples since 1972) comparator income has a negative effect on happiness equal in magnitude to the positive effect of own income. 2) In the West German Socio-Economic Panel since 1984 the same istrue but with life satisfaction as the dependant variable. We also use the Panel to compare the effect of income comparisons and of adaptation as factors explaining the stable level of life-satisfaction: income comparisons emerge as much the more important. 3) When in our U.S. analysis we introduce "perceived" relative income as a potential explanatory variable, its effect is as large as the effect of actual relative income - further supporting the view that comparisons matter. 4) Finally, for a panel of European countries since 1973 we estimate the effect of average income upon average lifesatisfaction, splitting income into two components: trend and cycle. The effect of trend income is small and illdefined. Our conclusions relate to time series and to advanced countries only. They differ from those drawn in recent studies by Deaton and Stevenson/Wolfers, but those studies are largely cross-sectional and mostly include non-advanced as well as advanced countries.

Keywords: Easterlin Paradox; happiness; relative income; growth (search for similar items in EconPapers)
JEL-codes: D31 D90 E1 H0 I31 O15 (search for similar items in EconPapers)
Pages: 34 p.
Date: 2009
New Economics Papers: this item is included in nep-hap and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_02.c.242706.de/diw_sp0210.pdf (application/pdf)

Related works:
Working Paper: Does Relative Income Matter? Are the Critics Right? (2009)
Working Paper: Does relative income matter? Are the critics right? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwsop:diw_sp210

Access Statistics for this paper

More papers in SOEPpapers on Multidisciplinary Panel Data Research from DIW Berlin, The German Socio-Economic Panel (SOEP) Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().