Happiness in Contemporary Japan: Study of Lifestyle and Values Using the Relative Income Hypothesis

Abstract

We conducted a Web Survey on Lifestyle and Values for 11,814 respondents in Japan in February 2015. In this study, we examined the relative income hypothesis, using Japanese nationwide survey data. The main findings of the study were as follows. First, our empirical results provide support for the relative income hypothesis, according to which individual life satisfaction depends not only on one’s own income but also on one’s income relative to those of others in area where an individual has his or her residence. Second, it was shown that discrete changes in both absolute and relative income had relatively smaller marginal effects on predicted probability of choosing an outcome of life satisfaction than those of discrete changes in individual attributes such as age, marital status, and occupational status, on average. Our contribution to the study of happiness and well-being is that our results support the relative income hypothesis in Japan: individual life satisfaction depends not only on one’s own income but also on one’s income relative to average income of the municipality where an individual has his or her residence. In addition, we found diminishing marginal utility with relative income. When relative income was sufficiently large, its marginal effect of predicted probability only slightly increased.