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Relative Income and Happiness in Latin America: Implications for Inequality Debates

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The Economics of Happiness

Abstract

This chapter studies the importance of absolute-income and relative-income effects in explaining people’s well-being in Latin America. A happiness approach is followed. The empirical research uses the Latin American Gallup Survey 2007, with more than 14,000 observations covering all countries in the region and which contains information on household income and on life satisfaction. Reference-groups are constructed on the basis of country-gender-age criteria. It is found that Latin American’s well-being strongly depends on their relative income, while the absolute-income effect is of lesser importance. The relative-income effect is important and significant for all segments of the income distribution. These findings are consistent with Easterlin (1974) and have important implications for the implementation and design of economic policies and development strategies.

‘No man is an island, entire of itself.’

John Donne

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Notes

  1. 1.

    Other criteria such as age brackets, gender and education or age brackets, gender and area of living provide results that are, in essence, similar. However, these criteria imply a pulverization of the data and lead to greater standard errors.

  2. 2.

    Utility is understood either in its ordinal conception -which is useful for explaining and predicting behavior- or in its latent well-being conception -which is useful for public policy and for the design and evaluation of social-programs.

  3. 3.

    This paper makes a semantic distinction between a person, who is defined as such in society, and an individual, who is out of any social context and whose role in functionalist models is to be the kernel for the construction of societies.

  4. 4.

    The assumption of cardinality allows for simplifying the presentation of descriptive statistics as well as the implementation of simple econometric techniques, such as ordinary least squared regressions. It is important to state that the treatment of these variables as ordinal –such as using ordered-probit econometric techniques- does not imply any significant change in the main results from this investigation.

  5. 5.

    Information regarding education in categories was calculated and provided by Cárdenas et al. (2008)

  6. 6.

    This is an arbitrary classification; McBride (2001) used a variation that assumes people compare with those who are in a range of (−5, +5) years their age.

  7. 7.

    If an additional criterion were considered, e.g.: a rural-urban criterion, then the number of groups would increase to 560; reducing the average number of observations in each group to about 25. Different criteria for group formation were followed: country-age-gender; country-age- gender-location; country-age-gender-education; and so on. It was found that the country-age-gender criterion provides clear results; while the country-age-gender-location criterion leads to similar results but with weaker significance tests, probably due to the reduced number of observations in each group.

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Author information

Authors and Affiliations

  1. FLACSO-México & UPAEP, Tlalpan, Ciudad de México, Mexico

    Mariano Rojas

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  1. Mariano Rojas
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Editors and Affiliations

  1. FLACSO-México & UPAEP, Tlalpan, Ciudad de México, Mexico

    Mariano Rojas

Appendix

Appendix

Table 5.5 Mean income values. Monthly household per capita income in PPP US dollars. By reference group1 in each count
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Rojas, M. (2019). Relative Income and Happiness in Latin America: Implications for Inequality Debates. In: Rojas, M. (eds) The Economics of Happiness. Springer, Cham. https://doi.org/10.1007/978-3-030-15835-4_5

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