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Inequality and Happiness: When Perceived Social Mobility and Economic Reality do not Match

46 Pages Posted: 25 Oct 2010  

Christian Bjørnskov

Aarhus University - Department of Economics and Business; Research Institute of Industrial Economics (IFN); Center for Political Studies

Axel Dreher

University of Heidelberg

Justina A. V. Fischer

Organization for Economic Co-Operation and Development (OECD); Stockholm School of Economics; University of Hohenheim

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics; Walter Eucken Institute

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Date Written: October 25, 2010

Abstract

In this paper, we revisit the association between happiness and inequality. We argue that the interaction between the perceived and the actual fairness of the income generation process affects this association. Building on a simple model of individual labor-market participation under uncertainty, we predict that higher levels of perceived fairness cause higher levels of utility, and lower preferred levels of income redistribution. In societies with a low level of actual social mobility, income inequality is perceived more negatively with increased perceived fairness, due to the need for unexpected policy changes as a response to many unsuccessful investments of overly optimistic individuals. This effect becomes smaller as actual social mobility increases. Using data on happiness and a broad set of fairness measures from the World Values Survey, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective wellbeing). We also find strong empirical support for the disappointment effect in countries with low social mobility. Consistent with our theoretical model, the results for high-mobility countries turn out to be ambiguous.

Keywords: happiness, life satisfaction, subjective well-being, inequality, income distribution, redistribution, political ideology, justice, fairness, World Values Survey

JEL Classification: I31, H40, D31, J62, Z13

Suggested Citation

Bjørnskov, Christian and Dreher, Axel and Fischer, Justina A. V. and Schnellenbach, Jan, Inequality and Happiness: When Perceived Social Mobility and Economic Reality do not Match (October 25, 2010). CESifo Working Paper Series No. 3216. Available at SSRN: https://ssrn.com/abstract=1697459

Christian Bjørnskov

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Allé 4
Aarhus V, DK-8210
Denmark

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Center for Political Studies

Landgreven 3
Copenhagen K, DK-1301
Denmark

Axel Dreher

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Justina A.V. Fischer (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Stockholm School of Economics

PO Box 6501
Stockholm, 11383
Sweden

University of Hohenheim

Fruwirthstr. 48
Stuttgart, 70599
Germany

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics ( email )

Erich-Weinert-Str. 1
Cottbus, 03046
Germany

HOME PAGE: http://https://www.b-tu.de/fg-vwl-mikro/team/prof-dr-jan-schnellenbach

Walter Eucken Institute ( email )

Goethestr. 10
Freiburg, 79100
Germany

HOME PAGE: http://www.eucken.de

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