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So Far so Good: Age, Happiness, and Relative Income

Author

Listed:
  • Felix R. FitzRoy
  • Michael A. Nolan
  • Max F. Steinhardt
  • David Ulph

Abstract

In a simple 2-period model of relative income under uncertainty, higher comparison income for the younger cohort can signal higher or lower expected lifetime relative income, and hence either increase or decrease well-being. With data from the German Socio-Economic Panel and the British Household Panel Survey, we first confirm the standard negative effects of comparison income on life satisfaction with all age groups, and many controls. However when we split the West German sample by age we find a positive significant effect of comparison income in the under 45s, and the usual negative effect only in the over 45 group. With the same split in UK and East German data, comparison income loses significance, which is consistent with the model prediction for the younger group. Our results provide first evidence that the standard aggregation with only a quadratic control for age can obscure major differences in the effects of relative income.

Suggested Citation

  • Felix R. FitzRoy & Michael A. Nolan & Max F. Steinhardt & David Ulph, 2011. "So Far so Good: Age, Happiness, and Relative Income," SOEPpapers on Multidisciplinary Panel Data Research 415, DIW Berlin, The German Socio-Economic Panel (SOEP).
    • Handle: RePEc:diw:diwsop:diw_sp415
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.390363.de/diw_sp0415.pdf
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    References listed on IDEAS

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    Cited by:

    1. Pannenberg, Markus & Goerke, Laszlo, 2013. "Direct Evidence on Income Comparisons and Subjective Well-Being," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79799, Verein für Socialpolitik / German Economic Association.
    2. Felix FitzRoy & Michael Nolan & Max Steinhardt & David Ulph, 2014. "Testing the tunnel effect: comparison, age and happiness in UK and German panels," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-30, December.
    3. Felix FitzRoy & Michael Nolan & Max Steinhardt & David Ulph, 2014. "Testing the tunnel effect: comparison, age and happiness in UK and German panels," IZA Journal of European Labor Studies, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-30, December.
    4. Laetitia Hauret & Donald R. Williams, 2017. "Cross-National Analysis of Gender Differences in Job Satisfaction," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(2), pages 203-235, April.
    5. Chrostek, Pawel, 2013. "An empirical investigation into the determinants and persistence of happiness and life evaluation," MPRA Paper 50442, University Library of Munich, Germany.
    6. Chrostek, Pawel, 2013. "An empirical investigation into the determinants and persistence of different types of subjective well-being," MPRA Paper 48292, University Library of Munich, Germany.
    7. Paweł Chrostek, 2016. "An Empirical Investigation into the Determinants and Persistence of Happiness and Life Evaluation," Journal of Happiness Studies, Springer, vol. 17(1), pages 413-430, February.

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    More about this item

    Keywords

    Subjective life-satisfaction; comparison income; reference groups; age; welfare;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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