Income and Well-Being: Relative Income and Absolute Income Weaken Negative Emotion, but Only Relative Income Improves Positive Emotion.

Zonghuo Yu,Li Chen

doi:10.3389/fpsyg.2016.02012

Abstract

Whether relative income or absolute income could affect subjective well-being has been a bone of contention for years. Life satisfaction and the relative frequency of positive and negative emotions are parts of subjective well-being. According to the prospect theory, hedonic adaptation helps to explain why positive emotion is often so hard to be maintained, and negative emotion wouldn’t be easy to be eliminated. So we expect the relationship between income and positive emotion is different from that between income and negative emotion. Given that regional reference is the main comparison mechanism, effects of regional average income on regional average subjective well-being should be potentially zero if only relative income matters. Using multilevel analysis, we tested the hypotheses with a dataset of 30,144 individuals from 162 counties in China. The results suggested that household income at the individual level is associated with life satisfaction, happiness and negative emotions. On the contrary, at a county level, household income is only associated with negative emotion. In other words, happiness and life satisfaction was only associated with relative income, but negative emotion was associated with relative income and absolute income. Without social comparison, income doesn’t improve happiness, but it could weaken negative emotion. Therefore, it is possible for economic growth to weaken negative emotion without improving happiness. These findings also contribute to the current debate about the “Esterling paradox.”

Highlights

It is a common belief that money makes people happier, but the relationship between income and subjective well-being is one of the most controversial issues in the research field of subjective wellbeing (e.g., Frey and Stutzer, 2002; Ferrer-i-Carbonell, 2005; Boyce et al, 2010; Easterlin et al, 2010; Easterlin, 2012)
Some argued that both absolute income and relative income could affect subjective well-being, but others suggested that only relative
Consistent with what is predicted by the “Easterlin Paradox,” Deaton and Stone (2013) found relative income, but not absolute income, was significantly associated with happiness

Summary

Introduction

It is a common belief that money makes people happier, but the relationship between income and subjective well-being is one of the most controversial issues in the research field of subjective wellbeing (e.g., Frey and Stutzer, 2002; Ferrer-i-Carbonell, 2005; Boyce et al, 2010; Easterlin et al, 2010; Easterlin, 2012). Many of the papers focused their attention on the mechanism underlying the relationship between income and subjective well-being. Some argued that both absolute income and relative income could affect subjective well-being, but others suggested that only relative. The “Easterlin Paradox” is one of the most famous theories about the relationship between income and happiness In this theory, two factors, hedonic adaptation and social comparison, were regarded as the underlying psychological mechanisms for the relationship between individuals’ income and subjective wellbeing (Easterlin et al, 2010; Kahneman and Deaton, 2010; Easterlin, 2012). Consistent with what is predicted by the “Easterlin Paradox,” Deaton and Stone (2013) found relative income, but not absolute income, was significantly associated with happiness

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