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Inequality and Happiness: When Perceived Social Mobility and Economic Reality Do Not Match

65 Pages Posted: 30 Nov 2015  

Christian Bjornskov

University of Aarhus

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

Kai Gehring

University of Zurich - Chair of Political Economy; University of Heidelberg

Date Written: November 29, 2015

Abstract

We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective wellbeing for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.

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

Bjornskov, Christian and Dreher, Axel and Fischer, Justina A. V. and Schnellenbach, Jan and Gehring, Kai, Inequality and Happiness: When Perceived Social Mobility and Economic Reality Do Not Match (November 29, 2015). Journal of Economic Behavior and Organization, Vol. 91, 2013. Available at SSRN: https://ssrn.com/abstract=2696753 or http://dx.doi.org/10.2139/ssrn.2696753

Christian Bjornskov

University of Aarhus

Nordre Ringgade 1
DK-8000 Aarhus C
Denmark

Axel Dreher

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

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

Justina A.V. Fischer

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

Kai Gehring (Contact Author)

University of Zurich - Chair of Political Economy ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland
+4917620916056 (Phone)

HOME PAGE: http://www.kai-gehring.net

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

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