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Age, Life-satisfaction, and Relative Income-Insights from the UK and Germany

Felix FitzRoy, Michael A. Nolan and Max Steinhardt ()

No 201105, Discussion Paper Series, School of Economics and Finance from School of Economics and Finance, University of St Andrews

Abstract: We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on life- satisfaction are positive and significant for those under 45, consistent with Hirschman’s (1973) ‘tunnel effect’, and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income’s signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.

Keywords: subjective life-satisfaction; comparison income; reference groups; age; welfare (search for similar items in EconPapers)
JEL-codes: D10 I31 J10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age
Date: 2011-11-15
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