Income Comparison, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling

28 Pages Posted: 1 May 2013

See all articles by Heinz Welsch

Heinz Welsch

University of Oldenburg; ZenTra - Center for Transnational Studies

Jan Kühling

University of Oldenburg; ZenTra - Center for Transnational Studies

Date Written: May 1, 2013

Abstract

Drawing on the distinction between envy and signaling effects in income comparison, this paper uses 307,465 observations for subjective well-being and its covariates from Germany, 1990-2009, to study whether the nature of income comparison has changed in the process of economic development, and how such changes are related to changes in the nature of income formation. By conceptualizing a person’s comparison income as the income predicted by an earnings equation, we find that, while in 1990-1999 envy has been the dominant concern in West Germany and signaling the dominant factor in East Germany, income comparison was non-existing in 2000-2009. We also find that the earnings equation reflects people’s ability more accurately in the second than in the first period. Together, these findings suggest that comparing one’s income with people of the same ability is important only when ability is insufficiently reflected in own income.

Keywords: income comparison, envy, signaling, subjective well-being, income formation

JEL Classification: D31, I31, J31, P36, Z13

Suggested Citation

Welsch, Heinz and Kühling, Jan, Income Comparison, Income Formation, and Subjective Well-Being: New Evidence on Envy versus Signaling (May 1, 2013). SOEPpaper No. 552, Available at SSRN: https://ssrn.com/abstract=2258400 or http://dx.doi.org/10.2139/ssrn.2258400

Heinz Welsch (Contact Author)

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131
Germany

Jan Kühling

University of Oldenburg

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

ZenTra - Center for Transnational Studies ( email )

Ammerländer Heerstraße 138
Oldenburg, 26131
Germany

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