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Education as a Positional Good: A Life Satisfaction Approach

Abstract

In this paper we empirically investigate the direct effects of education on utility. Besides investment aspects of education, the focus is placed on its consumption component and on education positional concerns. We use data from the World Values Survey (WVS) and adopt a life satisfaction approach. First, we find that education shows a significant effect on life satisfaction independent of its effect on income, thus identifying a consumption component of education. Furthermore, given that the contribution of education to individual wellbeing might depend partly on relative position rather than absolute levels, we next study whether education can be considered as a positional good. To this end we analyse the relationship between education and life satisfaction for people in different income groups in which the reference levels of education may differ. Additionally, we control for occupational status since benefits from education could appear via occupational benefits. Our results indicate that the contribution of education to subjective wellbeing is stronger as less people attain a given level of education, thus suggesting that this contribution is partly due to positional concerns.

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Notes

  1. Holländer (2001) provides an extensive discussion on the validity of the statements of the standard utility theory, characterized by independent utilities, and Duesenberry’s approach, characterized by systematically interdependent utilities.

  2. See Weiss and Fershtman (1998) and Frank (2005) for detailed overviews and discussion on positional concerns in the economic literature.

  3. In this paper we will not tackle this experimental economic literature; nevertheless, readers interested on this topic can refer to the work by Solnick and Hemenway (1998), Alpizar et al. (2005), or Carlsson et al. (2007), among others.

  4. The ‘happiness literature’ bases on individuals’ self-reported data about satisfaction with life, happiness or subjective wellbeing. It is noteworthy that satisfaction with life is a component, in addition to positive and negative affects, of subjective wellbeing (Diener 1984). Although recognizing differences in these constructs, throughout the paper we will use the words happiness, satisfaction and (subjective) wellbeing indistinctly.

  5. For an extensive review of this and other explanations to the ‘Easterlin paradox’, see Clark et al. (2008).

  6. Although in this work we will not focus on social returns, it is worthy to note that the implication of the human capital and the signaling approaches clearly differ regarding social returns since the positional component of education will be associated to negative externalities. Extensive discussion on positional externalities can be found in Frank (2005, 2008).

  7. An extensive discussion on the ideas of ‘decision’ and ‘experienced utility’, and their use in economics, can be found in Kahneman and Thaler (2006).

  8. See Wood and Taylor (1991) for a discussion of different individual goals in the social comparison literature.

  9. A detailed description of the variables used in this study is given in the Appendix.

  10. According to the European Union ‘Directive on Recognition of Professional Qualifications (2005/36/EC)’, liberal professions are defined as “those practised on the basis of relevant professional qualifications in a personal, responsible and professionally independent capacity by those providing intellectual and conceptual services in the interest of the client and the public”. Following this idea, in this study we consider as liberal professionals those working on the basis of a professionally independent work, such as professional lawyers, accountants, teachers, etc.

  11. The WVS asks the individuals to indicate in which income decile their household is placed (see Appendix). Therefore, we do not have data on actual income but subjective data on how the individuals place themselves on the income distribution; for this reason the distribution of the individuals in the low-, middle- and high-income groups is not 30, 40, 30%, respectively, as would logically be the case if we had data on actual income.

  12. Since coefficients in the ordered probit regressions are hard to interpret, which makes comparisons difficult, we also ran several OLS regressions corresponding to each probit model. Not surprising given that there are as many as 10 categories in the dependent variable, the results using OLS are qualitatively identical and quantitatively very similar to those of the ordered probit regressions.

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Acknowledgment

Mª del Mar Salinas-Jiménez and Javier Salinas-Jiménez acknowledge support from the Spanish Ministerio de Ciencia e Innovación (ECO2009-13864-C03-01 and ECO2009-13864-C03-02).

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Correspondence to Mª del Mar Salinas-Jiménez.

Appendix

Appendix

See Table 6.

Table 6 Variables definition (from the fourth wave-2005—WVS)

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Salinas-Jiménez, M.M., Artés, J. & Salinas-Jiménez, J. Education as a Positional Good: A Life Satisfaction Approach. Soc Indic Res 103, 409–426 (2011). https://doi.org/10.1007/s11205-010-9709-1

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Keywords

  • Life satisfaction
  • Education
  • Positional goods