Where the streets have no name: Comparing, Rating and Happiness in the US

Tuesday, June 24, 2014: 8:50 AM
Waite Phillips 207 (Waite Phillips Hall)

Author(s): Arie Kapteyn

Discussant: Sally C. Stearns

A burgeoning literature investigates the extent to which self-reported well-being (or happiness) or satisfaction with income is negatively related to the income of others. In many of the empirical studies, the assumption is that the incomes that matter are those of other individuals or households in the same geographical area. In an experiment conducted in the American Life Panel, we elicit the strength of comparison with different groups, such as neighbors or individuals of similar age. Individuals are much more likely to compare their income to the incomes of their family and friends, their coworkers and people their age than with people living in the same street, town, in the US, or in the world. Using the American Community Survey and Internal Revenue Service data, we find both at the zip code and at the PUMA geographic level own income matters for happiness and satisfaction with income, but incomes in the same geographic region do not influence own subjective well-being when controlling for own income.  When asking respondents directly for their perception of own and others’ income, we find that higher estimates of neighbors’ income are positively associated with happiness and negatively with satisfaction with income. For both happiness and satisfaction with income, the relation with the rating of one’s own income is always positive. Using age-based reference groups instead of geography-based reference groups, we find a consistent negative effect of the log median income and the perceived income of an individuals’ age group, while own income and perceived income are positive throughout. Overall, these results indicate that comparisons with neighbors may not be the most important channel through which perception of others’ income impacts one’s own well-being.