Income Comparison and Subjective Well-Being: Evidence from Self-Perceived Relative Income Data from China
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Income Comparison and Subjective Well‑Being: Evidence from Self‑Perceived Relative Income Data from China Han Yu1
© EEA 2020
Abstract This paper studies the impact of self-perceived relative income on subjective wellbeing (SWB) using data from China. The results show that perceiving a lower relative income in comparison with different reference groups leads to lower life satisfaction and happiness. The effect of the self-perceived relative income on SWB is monotonic—the lower the position of an individual in income comparisons, the larger the negative effect. In addition, favorable and unfavorable relative income positions have asymmetric impacts on life satisfaction, but not on happiness. The results hold when controlling for individual fixed effects by utilizing the panel structure of the data. Keywords Self-perceived relative income · Subjective well-being · China JEL Classification D31 · D63 · I31
Introduction Social comparisons are important in affecting people’s behaviors and outcomes. It has been well addressed in the literature that relative achievement can affect individuals’ labor market performance, health conditions, educational achievement, and other aspects of life (e.g., Boudreau et al. 2016; Kale et al. 2009; Morin 2006; Yu 2019a). A growing literature has emerged in the past two decades studying specifically the role of relative income in determining individuals’ subjective well-being (SWB). As suggested by Hirschman and Rothschild (1973) and Clark and Senik I am grateful to Naci Mocan for numerous suggestions and continuous encouragement. I would like to thank the editors of the Eastern Economic Journal (EEJ), Cynthia Bansak and Allan Zebedee, and anonymous referees at the EEJ for useful comments. * Han Yu [email protected] 1
Private Enterprise Research Center, Texas A&M University, College Station, USA Vol.:(0123456789)
H. Yu
(2010), there are two possible mechanisms through which relative income affects SWB. The first one is through the “envy” channel. If an individual envies the income level of his/her reference groups, we should expect a positive relationship between relative income position and SWB. On the contrary, through the “signal” channel, if an individual treats his/her reference groups’ income as his/her own potential future income, one should expect a negative correlation between relative income position and SWB. A number of studies report that when making comparisons to different reference groups, a higher relative income position of the individual is correlated with a higher level of SWB for that individual (see, e.g., Ferrer-i-Carbonell 2005; McBride 2001; Luttmer 2005; Blanchflower and Oswald 2004; Clark et al. 2008; Clark and Senik 2010; Clark et al. 2013; Huang et al. 2016; Oshio et al. 2011). One shortcoming of these studies, however, is that the reference groups for income comparisons are arbitrarily selected, to some extent. In these studies, relative income is usually constructed by the researchers. Specifically, a cell defined by age, gender, profession, etc.,
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