Abstract
AbstractIn contrast to previous results combining all ages, we findpositiveeffects of comparison income on happiness for the under 45s and negative effects for those over 45. In the UK, these coefficients are several times the magnitude of own income effects. In West Germany, they cancel out to givenoeffect of comparison income on life satisfaction in the whole sample when controlling for fixed effects, time-in-panel, and age-groupings. Pooled OLS estimation gives the usual negative comparison effect in the whole sample for both West Germany and the UK. The residual age-happiness relationship is hump-shaped in all three countries. Results are consistent with a simple life cycle model of relative income under uncertainty.Jel codesD10, I31, J10
Highlights
Among the most important results in happiness research, which help to explain the Easterlin Paradox of flat or declining average life satisfaction over time in the US and other advanced economies, are the strong negative effects of comparison with peergroup income found in many different contexts, but for life satisfaction in Germany and the US.1 as Hirschman and Rothschild (1973) observed, just before the seminal paper on subjective well-being by Easterlin (1974), comparison with a relevant reference group could have two very different effects
In West Germany, they cancel out to give no effect of comparison income on life satisfaction in the whole sample when controlling for fixed effects, time-in-panel, and age-groupings
Most rich countries show no upward trend in life satisfaction or happiness despite decades of economic growth and a strong cross-sectional relationship between individual income and life satisfaction, the famous paradox named after Easterlin (1974, 2013)
Summary
Among the most important results in happiness research, which help to explain the Easterlin Paradox of flat or declining average life satisfaction over time in the US and other advanced economies, are the strong negative effects of comparison with peergroup income found in many different contexts, but for life satisfaction in Germany and the US. as Hirschman and Rothschild (1973) observed, just before the seminal paper on subjective well-being by Easterlin (1974), comparison with a relevant reference group could have two very different effects. In our UK estimates, we confirm previous findings of a very small own-income effect (Pfaff, 2013), which is difficult to explain, and find a much larger comparison effect, negative for the whole sample, but again positive for the younger group This might suggest declining average life satisfaction in the UK, though it has less of an aging problem than Germany. Further research is needed to provide more detailed explanations of this failure and to guide policy towards raising the life satisfaction of all age groups
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