Income Comparisons and Subjective Well-Being: Evidence from Self-Perceived Relative Income Data from China

Abstract

This paper studies the impact of relative income on subjective wellbeing (SWB) using data on self-perceived relative income from China. It shows that when individuals perceive their incomes to be lower in comparison to their relatives, colleagues, school mates, neighbors and to the average income of the city or county where they live, this lowers their general life satisfaction and happiness. The effect of lower relative income on SWB is monotonic — the lower the position of an individual in income comparisons, the larger the negative effect of perceived relative income on SWB of that individual. Favorable and unfavorable relative income positions have asymmetric impacts on life satisfaction but they impact happiness symmetrically. The results are similar between men and women. The results hold when controlling for individual fixed effects by utilizing the panel structure of the two waves of the survey.