Age, life-satisfaction and relative income: insights from the UK and Germany

Felix R FitzRoy, Michael Nolan, Max F. Steinhardt

    Research output: Working paper

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    Abstract

    We first confirm previous results with the German Socio-Economic Panel by Layard et al. (2010), and obtain strong negative effects of comparison income. However, when we split the sample by age, we find quite different results for reference income. The effects on life- satisfaction are positive and significant for those under 45, consistent with Hirschman’s (1973) ‘tunnel effect’, and only negative (and larger than in the full sample) for those over 45, when relative deprivation dominates. Thus for young respondents, reference income’s signalling role, indicating potential future prospects, can outweigh relative deprivation effects. Own-income effects are also larger for the older sample, and of greater magnitude than the comparison income effect. In East Germany the reference income effects are insignificant for all. With data from the British Household Panel Survey, we confirm standard results when encompassing all ages, but reference income loses significance in both age groups, and most surprisingly, even own income becomes insignificant for those over 45, while education has significant negative effects.
    Original languageEnglish
    PublisherUniversity of St Andrews
    Number of pages25
    Publication statusPublished - Oct 2011

    Publication series

    NameSchool of Economics & Finance Discussion Paper
    PublisherUniversity of St Andrews
    No.1105
    ISSN (Print)0962-4031
    ISSN (Electronic)2055-303X

    Keywords

    • subjective life-satisfaction
    • comparison income
    • reference groups
    • age
    • welfare

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