Income Inequality and Social Status: The Social Rank and Material Rank Hypotheses

Abstract

We describe, critique, and develop the status anxiety hypothesis of income inequality. According to the status anxiety hypothesis, income inequality reduces well-being by increasing how much people care about social status and social comparison. We identify three limitations of the status anxiety approach. The first is a frequent failure to distinguish between a social rank hypothesis according to which income inequality increases social status concerns about all aspects of life, and a material rank hypothesis according to which income inequality increases concerns particularly with material aspects of life such as income and wealth. The second is the absence of a clear association between income inequality and some measures of well-being, and the third concern is the absence of a clear explanation for why income inequality increases status anxiety. We suggest that progress can be made by developing more specific process models motivated by the judgment and decision-making literature and by empirical evidence for the assumption that people are concerned with their relative ranked position compared to others.