Which Inequality Makes People Dissatisfied with Their Lives? Evidence of the Link between Life Satisfaction and Inequalities

Abstract

This paper aims at establishing a clear link between different types of inequality and life satisfaction in Europe. Indices of income inequality and of inequality of opportunity are proposed to identify the relationship with life satisfaction using six waves of the European Social Survey (ESS). In addition, reference groups based on similarly old and educated individuals are created to account for differences in relative income. Results show that income inequality, high levels of inequality of opportunity and negative relative socioeconomic status reduce people's life satisfaction in Europe. Moreover, variations in inequality of opportunity explain more than variations in income inequality. Our main results suggest that all socioeconomic groups are dissatisfied with income inequality, whereas primarily low socioeconomic groups worry about inequality of opportunity. We interpret our results advancing the hypothesis that high socioeconomic groups might fear to lose their advantaged position. This fear will then increase with income inequality. In contrast, limited social mobility reduces the satisfaction of disadvantaged groups, whereas it generates a lower risk of falling down for those with good circumstances and consequently no effects on their subjective well-being.