Absolute Income, Relative Income, and Happiness

Abstract:     
This paper uses data from the World Values Survey to investigate how an individual's self-reported happiness is related to (i) the level of her income in absolute terms, and (ii) the level of her income relative to other people in her country. The main findings are that (i) both absolute and relative income are positively and significantly correlated with happiness, (ii) quantitatively, changes in relative income have much larger effects on happiness than do changes in absolute income, and (iii) the effects on happiness of both absolute and relative income are small when compared to the effects several non-pecuniary factors.

Keywords: subjective well-being, relative income, happiness

JEL Classifications: D31, D63, I31

Working Paper Series