Abstract
Using data from the first two rounds of the European Social Survey, we examine the link between income, reference income and life satisfaction across Western Europe. We find that whilst there is a strong positive relationship between income and life satisfaction, reference or comparison income exerts a strong negative influence. Interestingly, our results confirm the importance of personal values and beliefs not only as predictors of subjective well-being, but also as mitigating factors in the relationship between income, reference income and life satisfaction. While our findings provide additional empirical support for the relative utility hypothesis, they are also consistent with Rojas’ (J Econ Psychol 28:1–14, 2007) Conceptual-Referent-Theory (CRT), which is based on the premise that the salience of income and comparison income depends on one’s intrinsic values and personal beliefs.
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Notes
More specifically, Easterlin (1974) finds that income growth in the US does not lead to higher levels of happiness, a finding further supported by subsequent studies based on time series data. In contrast, evidence based on cross-sectional data tends to support the existence of a positive, albeit generally weak, relationship between income and happiness.
According to Rojas, each of these conceptual referents is described by the simple phrase of what happiness is as follows: Stoicism, “Happiness is accepting things as they are”; Virtue, “Happiness is a sense of acting properly in our relations with others and with ourselves”; Enjoyment, “Happiness is to enjoy what one has attained in life”; Carpe diem, “Happiness is to seize every moment in life”; Satisfaction, “Happiness is being satisfied with what I have and what I am”; Utopian, “Happiness is an unreachable ideal we can only try to approach”; Tranquillity, “Happiness is in living a tranquil life, not looking beyond what is attainable”; and Fulfilment, “Happiness is in fully exercising our capabilities”.
For a comprehensive literature review of the income-happiness debate see Clark et al. (2008a).
It is possible that values and beliefs are endogenous in life satisfaction regressions and therefore the results, based on cross sectional data, need to be interpreted with some caution. However, we take comfort from the fact that some of our key findings are robust to a number of alternative specifications.
For a description and a discussion of the sampling design and implementation of the ESS survey see Lynn et al. (2004).
We also used McBride’s (2001) definition that includes all individuals who are in the age range of 5 years younger to 5 years older than the respondent. As the results were largely unchanged, we only report the empirical findings based on Ferrer-i-Carbonell’s proxy for reference income.
This point is also made by Stutzer (2004).
We thank an anonymous referee for pointing this out.
It is worth noting, however, that the effect of marital status may reflect only a transitory state of well-being. As Lucas et al. (2003) argue, although on average people tend to react positively to a life event such as marriage and negatively to divorce, events such as marriage or divorce do not have the same implications for all individuals.
Clark et al. (2008b) provide evidence that confirms the positive (negative) effect of marriage (divorce) on life satisfaction. Such an effect tends to be strongest during the time of the event and it is mostly transitory, in that individuals return quickly to pre-event satisfaction levels. Clark et al. (2008b) also confirm the transitory nature of the potentially positive effect of the birth of a child.
We also estimated separate regressions for men and women. The results show that the positive effect of income and the negative effect of relative income on life satisfaction tend to be stronger for men. These results are available upon request.
The lack of a significant effect in Scandinavia could be partially attributed to the greater degree of homogeneity in personal values and beliefs in this population. Moreover, simple t-tests for the equality of means and variances show that many of these values and beliefs do not differ across Scandinavian countries in a statistically significant way.
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Georgellis, Y., Tsitsianis, N. & Yin, Y.P. Personal Values as Mitigating Factors in the Link Between Income and Life Satisfaction: Evidence from the European Social Survey. Soc Indic Res 91, 329–344 (2009). https://doi.org/10.1007/s11205-008-9344-2
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DOI: https://doi.org/10.1007/s11205-008-9344-2