Abstract
We extend the Easterlin Paradox (EP) literature in two key respects. First, we test whether income comparisons matter for subjective wellbeing both when own incomes are compared with others within the country (intra-national) and with incomes across countries (inter-national). Second, we test whether these effects differ by settlement-type (rural through to large cities) and by country-type (developed and transitional). We confirm the intra-national EP prediction that subjective wellbeing is unchanged by an equi-proportionate rise in intra-country incomes across all developed country settlement-types. This is also the case for rural areas in transitional countries but not for larger settlements in those countries. Inter-national income comparisons are important for people’s subjective wellbeing across all country-settlement-types. Policy-makers must therefore consider their citizens’ incomes in an international context and cannot restrict attention solely to the intra-national income distribution.
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Notes
- 1.
A related area of research examines spatial patterns in regional wellbeing outcomes (Okulicz-Kozaryn 2011). We do not do so since, while our data indicates settlement size of respondents, it does not identify respondents’ specific regions.
- 2.
We control for a quartic polynomial in age (Clark et al. 1996), marital status (married, divorced, widowed, cohabiting, separated), employment status (unemployed, full-time worker, part-time worker, retired, house-spouse, self-employed, student), gender, and gender interacted with the other controls. Education controls (relating to eight different education levels) are included in all but one regression.
- 3.
The EVS data are publicly available from http://www.europeanvaluesstudy.eu; see EVS (2011). Wave 1 is not considered due to a lack of data. Grimes and Reinhardt (2015) provide more detail on data cleaning procedures, especially with respect to income.
- 4.
Reflecting the approach of Donnelly and Pol-Eleches (2012), we code income in the (unlimited) top band as the lower bound plus half the band-width of the second highest band. Use of other imputation techniques for this income category result in very little change to any of our findings.
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Acknowledgements
We thank Robert MacCulloch, Tim Hazledine, Philip Morrison, John Helliwell, Motu colleagues and participants at the Regional Studies Association conference (Piacenza) and the New Zealand Association of Economists conference (Wellington) for comments on earlier drafts. We are grateful for funding from the Marsden Fund of the Royal Society of New Zealand (MEP1201) and from the Resilient Urban Futures programme (Ministry of Business, Innovation and Employment). The authors are solely responsible for the views expressed.
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Grimes, A., Reinhardt, M. (2019). Relative Income, Subjective Wellbeing and the Easterlin Paradox: Intra- and Inter-national Comparisons. In: Rojas, M. (eds) The Economics of Happiness. Springer, Cham. https://doi.org/10.1007/978-3-030-15835-4_4
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