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

27 Pages Posted: 30 Oct 2011

See all articles by Felix R. Fitzroy

Felix R. Fitzroy

University of St. Andrews; IZA Institute of Labor Economics

Michael A. Nolan

University of Hull - Department of Economics

Max Friedrich Steinhardt

Free University of Berlin (FUB) - Department of Business and Economics; IZA Institute of Labor Economics; Centro Studi Luca D'Agliano (LdA); Hamburg Institute of International Economics (HWWI)

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

JEL Classification: D10, I31, J10

Suggested Citation

Fitzroy, Felix R. and Nolan, Michael A. and Steinhardt, Max Friedrich, Age, Life-Satisfaction, and Relative Income: Insights from the UK and Germany. IZA Discussion Paper No. 6045, Available at SSRN: https://ssrn.com/abstract=1951336 or http://dx.doi.org/10.2139/ssrn.1951336

Felix R. Fitzroy (Contact Author)

University of St. Andrews ( email )

St Salvator's College
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IZA Institute of Labor Economics

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Michael A. Nolan

University of Hull - Department of Economics ( email )

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Max Friedrich Steinhardt

Free University of Berlin (FUB) - Department of Business and Economics ( email )

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