Who Compares to Whom? The Anatomy of Income Comparisons in Europe

33 Pages Posted: 15 Oct 2009

See all articles by Andrew Clark

Andrew Clark

Paris School of Economics (PSE); IZA Institute of Labor Economics

Claudia Senik

National Center for Scientific Research - Department and Laboratory of Applied and Theoretical Economics (DELTA); Universite Paris IV Sorbonne; IZA Institute of Labor Economics

Abstract

This paper provides unprecedented direct evidence from large-scale survey data on both the intensity (how much?) and direction (to whom?) of income comparisons. Income comparisons are considered to be at least somewhat important by three-quarters of Europeans. They are associated with both lower levels of subjective well-being and a greater demand for income redistribution. The rich compare less and are more happy than average when they do, which latter is consistent with relative income theory. With respect to the direction of comparisons, colleagues are the most frequently-cited reference group. Those who compare to colleagues are happier than those who compare to other benchmarks; comparisons to friends are both less widespread and are associated with the lowest well-being scores. This is consistent with information effects, as colleagues' income arguably contains more information about the individual's own future prospects than do the incomes of other reference groups. Last, there is some evidence that reference groups are endogenous, with individuals tending to compare to those with whom they interact the most often.

Keywords: income comparisons, relative income, reference groups, happiness, redistribution, European Social Survey

JEL Classification: D31, D63, I3, J31, Z13

Suggested Citation

Clark, Andrew Eric and Senik, Claudia, Who Compares to Whom? The Anatomy of Income Comparisons in Europe. IZA Discussion Paper No. 4414, Available at SSRN: https://ssrn.com/abstract=1489237 or http://dx.doi.org/10.2139/ssrn.1489237

Andrew Eric Clark (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Claudia Senik

National Center for Scientific Research - Department and Laboratory of Applied and Theoretical Economics (DELTA) ( email )

ENS, 48, bd Jourdan
75014 Paris
France
+33 1 4313 6312 (Phone)

Universite Paris IV Sorbonne

Department of Economics
75230 Paris Cedex 05
France
01 43 13 63 12 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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