Relative income gains and losses and subjective well-being in Europe

An earlier version was presented at the International Confederation for the Advancement of Behavioral Economics and Economic Psychology, University of Cologne, 5-8, September, 2010. Copyright and all rights therein are retained by the authors. All persons copying this information are expected to adhere to the terms and conditions invoked by each author's copyright. These works may not be re-posted without the explicit permission of the copyright holdersThis study aims to shed further light on the mechanisms of how relative income influences people’s subjective wellbeing using four waves of data in the European Social Survey (ESS). The correspondents to the ESS are classified into finer sub-groups according to their income positions relative to the national average and their respective occupational group average earnings. A series of pooled cross-sectional ordered-probit models are estimated for the sub-groups and our results reveal hitherto new contrasting patterns of the influence of relative income on subjective wellbeing. Perhaps the most significant finding is that whilst relative gains have no significant impact on wellbeing in any group, relative losses do matter. Moreover, the low-income losers form the largest sub-group in society and the magnitude of their relative loss is positively associated with their subjective wellbeing. Therefore, the ‘social comparison’ effect is particularly evident amongst this group and could have significant implications for social mobility and economic dynamismFinal Published versio