Relative-income effects on subjective well-being in the cross-section

Abstract

Recent work suggests that a person’s subjective well-being (SWB) depends to a large degree on relative-income. Focusing on the underlying identification, this paper makes four contributions to this literature: it describes the aggregation problem with past studies, implements an estimation strategy to overcome this problem, finds micro-level evidence in support of the hypothesis that relative-income does matter in individual assessments of SWB, and uses cross-section estimates to replicate the aggregate time-series. The evidence further indicates that relative-income effects may be smaller at low income levels. The results are obtained from ordered probit techniques and the general social survey (GSS).