Income Comparisons and Non-Cognitive Skills

31 Pages Posted: 28 Apr 2012

See all articles by Santi Budria

Santi Budria

affiliation not provided to SSRN

Ada Ferrer-i-Carbonell

Institut d'Anàlisi Econòmica (IAE-CSIC), Barcelona

Date Written: April 1, 2012

Abstract

People gain utility from occupying a higher ranked position in the income distribution of the reference group. This paper investigates whether these gains depend on an individual’s set of non-cognitive skills. Using the 2000-2008 waves of the German Socioeconomic Panel dataset (SOEP), a subjective question on Life Satisfaction, and three different sets of non-cognitive skills indicators, we find significant and robust differences across skills groups. People who are more neurotic, extravert and have low external locus of control and low negative reciprocity are more sensitive to their individual position in the economic ladder. By contrast, the Life Satisfaction reaction to changes in economic status is significantly lower among individuals who score high (low) in negative (positive) reciprocity, and are at the bottom of the distribution of neuroticism, extraversion. The heterogeneity on the importance of income comparisons needs to be taken into account when, for example, introducing them into economic models, predicting individuals’ behaviour, or making welfare judgments.

Keywords: Life satisfaction, income comparisons, personality traits

JEL Classification: D62, I31

Suggested Citation

Budria, Santi and Ferrer-i-Carbonell, Ada, Income Comparisons and Non-Cognitive Skills (April 1, 2012). SOEPpaper No. 441. Available at SSRN: https://ssrn.com/abstract=2046976 or http://dx.doi.org/10.2139/ssrn.2046976

Santi Budria (Contact Author)

affiliation not provided to SSRN ( email )

Ada Ferrer-i-Carbonell

Institut d'Anàlisi Econòmica (IAE-CSIC), Barcelona ( email )

Barcelona, Bellaterra 08193
Spain

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