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Social Indicators Research

, Volume 113, Issue 1, pp 81–105 | Cite as

Subjective Well-Being, Income and Relative Concerns in the UK

  • Roberta DistanteEmail author
Article

Abstract

We present an empirical model aimed at testing the relative income hypothesis and the effect of deprivation relative to mean income on subjective well-being. The main concern is to deal with subjective panel data in an ordered response model where error homoskedasticity is not assumed. A heteroskedastic pooled panel ordered probit model with unobserved individual-specific effects is applied to micro-data available in the British Household Panel Survey for 1996–2007. In this framework, absolute income impacts negatively on both completely satisfied and dissatisfied individuals, while relative income affects positively the most satisfied ones. Such an effect is asymmetric, impacting more severely on the relatively poor in the reference group. We argue that our results buttress the validity of the relative income hypothesis as an explanation of the happiness paradox.

Keywords

Subjective well-being Relative income Absolute income Deprivation Panel data Discrete choice models 

Notes

Acknowledgments

I would like to thank Mette Ejrnæs, Lars Peter Østerdal, Marcos Vera Hernandez, Ada Ferrer-i-Carbonell, and Emiliano Santoro for their invaluable discussions. All errors are my own.

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Copyright information

© Springer Science+Business Media B.V. 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CopenhagenCopenhagenDenmark

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