Direct Evidence on Income Comparisons and Subjective Well-Being

21 Pages Posted: 20 Apr 2013

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics; DIW Berlin - GSOEP; Institute for the Study of Labor (IZA), Bonn

Date Written: April 1, 2013

Abstract

Subjective well-being (SWB) is generally argued to rise with relative income. However, direct evidence is scarce on whether and how intensively individuals undertake income comparisons, to whom they relate, and what they perceive their relative income to be. In this paper, novel data with direct information on income comparison intensity and perceived relative income with respect to predetermined reference groups is used to provide evidence on the relationship between income comparisons and SWB. We find negative correlations between comparison intensity and SWB for co-workers, people in the same occupation and friends. For job-related reference groups income comparisons are mostly upwards and perceiving to earn less than the reference group is negatively correlated with SWB.

Keywords: Income Comparisons, Endogenous Reference Groups, German Socio-Economic Panel (SOEP), Subjective Well-Being

JEL Classification: D31, D62, I31

Suggested Citation

Goerke, Laszlo and Pannenberg, Markus, Direct Evidence on Income Comparisons and Subjective Well-Being (April 1, 2013). SOEPpaper No. 549, Available at SSRN: https://ssrn.com/abstract=2253840 or http://dx.doi.org/10.2139/ssrn.2253840

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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IZA Institute of Labor Economics

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Markus Pannenberg

University of Applied Sciences Bielefeld - Department of Business and Economics ( email )

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