The Journal of Economic Inequality

, Volume 7, Issue 3, pp 225–248 | Cite as

How important is rank to individual perception of economic standing? A within-community analysis

Article

Abstract

Using the Indonesia Family Life Survey data, this paper is the first of its kind to explore empirically whether rank-position within one’s community matters to individual perception of where he or she stands on the self-defined economic ladder. By applying a multi-level modeling equation approach on responses to the subjective economic ladder (SEL) question, I find that it is not the mean income or expenditure of a reference group that affects SEL but rather the individual’s ordinal ranking within a reference group (for example, the individual is from the 5th or 40th richest household in the community). Consistent with Hirsch (Hirsch, F.: Social limitation to growth. Harvard University Press, Cambridge (1976)), SEL depends significantly more on the rank-position of the positional goods and less on the nonpositional goods owned by the individual.

Keywords

Subjective economic ladder Rank Range frequency theory Positional goods Inequality 

JEL

D62 I1311 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    Abbott, D.H., Keverne, E.B., Bercovitch, F.B., Shively, C.A., Mendoza, S.P., Saltzman, W., Snowdon, C.T., Ziegler, T.E., Banjevic, M., Garland Jr., T., Sapolsky, R.M.: Are subordinates always stressed? A comparative analysis of rank differences in cortisol levels among primates. Horm. behav. 43, 67–82 (2003)CrossRefGoogle Scholar
  2. 2.
    Akerlof, G.A., Yellen, J.L.: The fair wage-effort hypothesis and unemployment. Q. J. Econ. 105, 255–284 (1990)CrossRefGoogle Scholar
  3. 3.
    Alpizar, F., Carlsson, F., Johansson-Stenman, O.: How much do we care about absolute versus relative income and consumption? J. Econ. Behav. Organ. 56, 405–421 (2005)CrossRefGoogle Scholar
  4. 4.
    Andreoni, J., Scholz, J.K.: An econometric analysis of charitable giving with interdependent preferences. Econ. Inq. 36, (3), 410–428 (1998)CrossRefGoogle Scholar
  5. 5.
    Arronson, T., Blomquist, S., Sacklen, H.: Identifying interdependent behavior in an empirical model of labor supply. J. Appl. Econ. 14, (6), 607–626 (1999)CrossRefGoogle Scholar
  6. 6.
    Blanchflower, D., Oswald, A.J.: Well-being over time in Britain and the USA. J. Public Econ. 88, 1359–1386 (2004)CrossRefGoogle Scholar
  7. 7.
    Bolton, G.E.: A comparative model of bargaining: theory and evidence. Am. Econ. Rev. 81, 1096–1136 (1991)Google Scholar
  8. 8.
    Bolton, G.E., Ockenfels, A.: A theory of equity, reciprocity, and competition. Am. Econ. Rev. 100, 166–193 (2000)CrossRefGoogle Scholar
  9. 9.
    Brown, G.D.A., Gardner, J., Oswald, A.J., Qian, J.: Does wage rank affect employees’ well-being? Industrial Relations (in press) (2008)Google Scholar
  10. 10.
    Burchell, B., Yagil, D.: Socioeconomic and political initiators of pay comparison. Work Employment and Society 11, 737–748 (1997)Google Scholar
  11. 11.
    Cantril, H.: The Pattern of Human Concern. Rutgers University Press, New Brunswick (1965)Google Scholar
  12. 12.
    Carlsson, F., Johansson-Stenman, O., Martinsson, P.: Do you enjoy having more than others? Survey evidence of positional goods. Economica 74, 586–598 (2007)CrossRefGoogle Scholar
  13. 13.
    Charness, G., Grosskopf, B.: Relative payoff and happiness: an experimental study. J. Econ. Behav. Organ. 45, 301–328 (2001)CrossRefGoogle Scholar
  14. 14.
    Childers, T.L., Rao, A.R.: The influence of familial and peer-based reference groups on consumer decisions. J. Consum. Res. 19, (2), 198–211 (1992)CrossRefGoogle Scholar
  15. 15.
    Clark, A.E.: Unemployment as a social norm: psychological evidence from panel data. J. Labor Econ. 21, 323–351 (2003)CrossRefGoogle Scholar
  16. 16.
    Clark, A.E., Oswald, A.J.: Satisfaction and comparison income. J. Public Econ. 61, 359–381 (1996)CrossRefGoogle Scholar
  17. 17.
    Clark, A.E., Oswald, A.J.: Comparison-concave utility and following behavior in social and economic settings. J. Public Econ. 70, 133–155 (1998)CrossRefGoogle Scholar
  18. 18.
    Duesenberry, J.S.: Income, Saving and the Theory of Consumer Behaviour: Cambridge, MA: Harvard University Press (1949)Google Scholar
  19. 19.
    Easterlin, R.A.: Does economic growth improve the human lot? Some empirical evidence. Nations and Households in Economic Growth: Essays in Honor of Moses Abramowitz. Academic Press, New York (1974)Google Scholar
  20. 20.
    Easterlin, R.A.: Will raising the income of all increase the happiness of all? J. Econ. Behav. Organ. 27, 35–48 (1995)CrossRefGoogle Scholar
  21. 21.
    Falk, A., Knell, M.: Choosing the Joneses: on the endogeneity of reference groups. Scand. J. Econ. 106, (3), 417–435 (2004)CrossRefGoogle Scholar
  22. 22.
    Ferrer-i-Carbonell, A.: Income and well-being: an empirical analysis of the comparison income effects. J. Public Econ. 89, 997–1019 (2005)CrossRefGoogle Scholar
  23. 23.
    Ferrer-i-Carbonell, A., Frijters, P.: The effect of methodology on the determinants of happiness. The Economic Journal, 114, 641–659 (2004)CrossRefGoogle Scholar
  24. 24.
    Folger, R.: Perceived injustice, referent cognitions, and the concept of comparison level. Represent. Res. Soc. Psychol. 14, 88–108 (1984)Google Scholar
  25. 25.
    Frank, R.H.: The demand for unobservable and other nonpositional goods. Am. Econ. Rev. 75, 101–116 (1985a)Google Scholar
  26. 26.
    Frank, R.H.: Choosing the Right Pond: Human Behavior and the Quest for Status. Oxford University Press, London (1985b)Google Scholar
  27. 27.
    Frank, R.H.: Luxury Fever: Money and Happiness in an Era of Excess. Princeton University Press, Princeton and Oxford (1999)Google Scholar
  28. 28.
    Frey, B.S., Stutzer, A.: Happiness and Economics. Princeton University Press, Princeton and Oxford (2002)Google Scholar
  29. 29.
    Goldstein, H.: Multilevel Statistical Models, 3rdrd edn. Arnold, London (2003)Google Scholar
  30. 30.
    Graham, C., Pettinato, S.: Happiness and Hardship: Opportunity and Insecurity in New Market Economies. Brookings Institution Press, Washington D.C (2002)Google Scholar
  31. 31.
    Hagerty, M.R.: Social comparisons of income in one’s community: evidence from national surveys of income and happiness. J. Pers. Soc. Psychol. 78, 764–771 (2000)CrossRefGoogle Scholar
  32. 32.
    Hamermesh, D.S.: Interdependence in the labor market. Economica 42, 420–429 (1975)CrossRefGoogle Scholar
  33. 33.
    Hamermesh, D.S.: The changing distribution of job satisfaction. J. Hum. Resour. 36, 1–30 (2001)CrossRefGoogle Scholar
  34. 34.
    Hirsch, F.: Social limitation to growth. Harvard University Press, Cambridge (1976)Google Scholar
  35. 35.
    Hirschman, A.O.: Changing tolerance for income inequality in the course of economic development. Q. J. Econ. 87, 544–466 (1973)CrossRefGoogle Scholar
  36. 36.
    Hopkins, E., Kornienko, T.: Running to keep in the same place: consumer choice as a game of status. Am. Econ. Rev. 94, 1085–1107 (2004)CrossRefGoogle Scholar
  37. 37.
    Johansson-Stenman, O., Martinsson, P.: Honestly, why are you driving a BMW? J. Econ. Behav. Organ. 60, 129–146 (2006)CrossRefGoogle Scholar
  38. 38.
    Judge, T., Martocchio, J.J., Thoresen, C.: Five-factor model of personality and employee absent. J. Appl. Psychol. 82, 745–755 (1997)CrossRefGoogle Scholar
  39. 39.
    Kahneman, D.: Reference points, anchors, norms, and mixed feelings. Org. Behav. Human Decis. Process. 51, 296–312 (1992)CrossRefGoogle Scholar
  40. 40.
    Kapteyn, A.: A Theory of Preference Formation. Dissertation Leyden University, Leyden (1977)Google Scholar
  41. 41.
    Kapteyn, A., van Herwaarden, F.G.: Independent welfare functions and optimal income distribution. J. Public Econ. 14, 375–397 (1980)CrossRefGoogle Scholar
  42. 42.
    Kapteyn, A., van de Geer, S., van de Stadt, H., Wansbeek, T.: Independent preferences: an econometric analysis. J. Appl. Econ. 12, 665–686 (1997)CrossRefGoogle Scholar
  43. 43.
    Kenny, D., Kashy, D., Bolger, N.: Data analysis in social psychology. Handbook of Social Psychology, 4thth edn. pp. 233–265. McGraw-Hill, Boston (1998)Google Scholar
  44. 44.
    Kingdon, G., Knight, J.: Community, comparison, and subjective well-being in a divided society. J. Econ. Behav. Organ. 64, (1), 69–90 (2007)CrossRefGoogle Scholar
  45. 45.
    Kivimaki, M., Vahtera, J., Thomson, L., Griffiths, A., Cox, T., Pentti, J.: Psychological factors predicting employee sickness absence during economic decline. J. Appl. Psychol. 82, 858–872 (1997)CrossRefGoogle Scholar
  46. 46.
    Layard, R.: Human satisfactions and public policy. The Economic Journal 90, 737–750 (1980)CrossRefGoogle Scholar
  47. 47.
    Luttmer, E.F.P.: Neighbors as negatives: relative earnings and well-being. Q. J. Econ. 120, 963–1002 (2005)CrossRefGoogle Scholar
  48. 48.
    McBride, M.: Relative-income effects on subjective well-being in the cross-section. Journal of Behavior Economics and Organization 45, 251–278 (2001)CrossRefGoogle Scholar
  49. 49.
    Mellers, B.A.: “Fair” allocations of salaries and taxes. J. Exp. Psychol. 12, 80–91 (1986)Google Scholar
  50. 50.
    Mundlak, Y.: On the pooling of time-series and cross sectional data. Econometrica 46, 69–85 (1978)CrossRefGoogle Scholar
  51. 51.
    Ordonez, L.D., Connolly, T., Coughlan, R.: Multiple reference points in satisfaction and fairness assessment. J. Behav. Decis. Mak. 13, 329–344 (2000)CrossRefGoogle Scholar
  52. 52.
    Oswald, A.J.: Altruism, jealousy and the theory of optimal non-linear taxation. J. Public Econ. 20, 77–88 (1983)CrossRefGoogle Scholar
  53. 53.
    Parducci, A.: Happiness, pleasure, and judgment: the contextual theory and its applications. Erlbaum, Mahwah, NJ (1995)Google Scholar
  54. 54.
    Persky, J., Tam, M-Y.: Local status and national social welfare. J. Reg. Sci. 30, (2), 229–238 (1990)CrossRefGoogle Scholar
  55. 55.
    Powdthavee, N.: Happiness and the Standard of Living: the Case of South Africa. Handbook on the Economics of Happiness, pp. 447–486. Edward Elgar, Cheltenham, UK (2007a)Google Scholar
  56. 56.
    Powdthavee, N.: Feeling richer or poorer than others: a cross-section and panel analysis of subjective economic ladder in Indonesia. Asian Econ. J. 21, (2), 169–194 (2007b)CrossRefGoogle Scholar
  57. 57.
    Ravallion, M., Lokshin, M.: Identifying status effects from subjective questions. Economica, 68, 335–357 (2001)CrossRefGoogle Scholar
  58. 58.
    Ravallion, M., Lokshin, M.: Self-rated economic welfare in Russia. Eur. Econ. Rev. 46, 1453–1473 (2002)CrossRefGoogle Scholar
  59. 59.
    Rees, A.: The role of fairness in wage determination. J. Labor Econ. 11, 243–252 (1993)CrossRefGoogle Scholar
  60. 60.
    Samuelson, L.: Information-based relative consumption effects. Econometrica 72, 93–118 (2004)CrossRefGoogle Scholar
  61. 61.
    Sapolsky, R.M.: Social status and health in humans and other animals. Annu. Rev. Anthropol. 33, 393–318 (2004)CrossRefGoogle Scholar
  62. 62.
    Schram, A., Sonnemans, J.: Why do people vote: experimental evidence. J. Econ. Psychol. 17, (4), 417–442 (1996)CrossRefGoogle Scholar
  63. 63.
    Senik, C.: When information dominates comparison. A panel data analysis using Russian Subjective data. J. Public Econ. 88, 2099–2123 (2004)CrossRefGoogle Scholar
  64. 64.
    Smith, R.H., Diener, E., Wedell, D.H.: Interpersonal and social comparison determinants of happiness: a range-frequency analysis. J. Pers. Soc. Psychol. 56, 317–325 (1989)CrossRefGoogle Scholar
  65. 65.
    Steele, F., Vignoles, A., Jenkins, A.: The effect of school resources on pupil attainment: a multilevel simultaneous equation modeling approach. Journal of Royal Statistical Society Series A 170, (3), 801–824 (2007)Google Scholar
  66. 66.
    Stigler, G.L.: The development of utility theory II. The Journal of Political Economy 58, 373–396 (1950)CrossRefGoogle Scholar
  67. 67.
    Van de Stadt, H., Kapteyn, A., Van de Geer, S.: The relativity of utility: evidence from panel data. Rev. Econ. Stat. 67, 179–187 (1985)CrossRefGoogle Scholar
  68. 68.
    Van Praag, B.M.S.: The welfare function of income in Belgium: an empirical investigation. Eur. Econ. Rev. 2, 337–369 (1971)CrossRefGoogle Scholar
  69. 69.
    Van Praag, B.M., Frijters, P.: The Measurement of Welfare and Well-Being: The Leyden Approach. In: Kahneman, D., Diener, E., Schwarz, N. (eds.) Well-Being: The Foundations of Hedonic Psychology, pp. 413–33. Russell Sage Foundation (1999)Google Scholar
  70. 70.
    Woittiez, I., Kapteyn, A.: Social interactions and habit formation in a model of female labor supply. J. Public Econ. 70, (2), 185–205 (1998)CrossRefGoogle Scholar
  71. 71.
    Zizzo, D.J.: Between utility and cognition: the neurobiology of relative position. J. Econ. Behav. Organ. 48, 71–91 (2002)CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2008

Authors and Affiliations

  1. 1.Bedford Group, Institute of EducationUniversity of LondonLondonUK

Personalised recommendations