Effects of Objective and Subjective Income Comparisons on Subjective Wellbeing

Abstract

In this article we present results from the Cape Area Panel Study investigating how income comparisons affect the subjective well-being of young adults and parents. The article builds on previous research in this area by studying whether an individual’s subjective well-being depends on the comparisons they make, not only to those around them, i.e., external comparisons, but to themselves across different time periods, i.e., internal comparisons. In the comparisons, we use both objective and subjective measures of relative income. Overall, we find strong evidence to suggest that income comparisons, both relative to neighbours and relative to oneself, affect subjective well-being. Another interesting observation is that, depending on the comparator, young adults and parents differ in their perceptions of their own well-being. Furthermore, and as expected, we found that objective, as well as subjective, measures of well-being influence well-being, but that this is more prevalent in external than internal comparisons.