Cookies?
Library Header Image
LSE Research Online LSE Library Services

Does relative income matter? Are the critics right?

Layard, Richard, Mayraz, Guy and Nickell, Stephen (2009) Does relative income matter? Are the critics right? CEP Discussion Paper, No. 918. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

[img]
Preview
PDF
Download (483Kb) | Preview

Abstract

Do other peoples’ incomes reduce the happiness which people in advanced countries experience from any given income? And does this help to explain why in the U.S., Germany and some other advanced countries, happiness has been constant for many decades? The answer to both questions is ‘Yes’. We provide 4 main pieces of evidence. 1) In the U.S. General Survey (repeated samples since 1972) comparator income has a negative effect on happiness equal in magnitude to the positive effect of own income. 2) In the West German Socio-Economic Panel since 1984 the same is true but with lifesatisfaction as the dependant variable. We also use the Panel to compare the effect of income comparisons and of adaptation as factors explaining the stable level of life-satisfaction: income comparisons emerge as much the more important. 3) When in our U.S. analysis we introduce “perceived” relative income as a potential explanatory variable, its effect is as large as the effect of actual relative income – further supporting the view that comparisons matter. 4) Finally, for a panel of European countries since 1973 we estimate the effect of average income upon average lifesatisfaction, splitting income into two components: trend and cycle. The effect of trend income is small and ill-defined. Our conclusions relate to time series and to advanced countries only. They differ from those drawn in recent studies by Deaton and Stevenson/Wolfers, but those studies are largely cross-sectional and mostly include non-advanced as well as advanced countries.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2009 The authors
Library of Congress subject classification: H Social Sciences > HN Social history and conditions. Social problems. Social reform
H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth
H - Public Economics > H0 - General > H00 - General
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
I - Health, Education, and Welfare > I3 - Welfare and Poverty > I31 - General Welfare; Basic Needs; Living Standards; Quality of Life; Happiness
D - Microeconomics > D9 - Intertemporal Choice and Growth > D90 - General
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources; Human Development; Income Distribution; Migration
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: No. 918
Date Deposited: 13 Jul 2010 11:32
URL: http://eprints.lse.ac.uk/28594/

Actions (login required)

Record administration - authorised staff only Record administration - authorised staff only