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Subjective Well-Being Analysis of Income Inequality: Evidence for the Industrialized and Emerging Economies

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Abstract

Subjective well-being analysis of income inequality finds that very high levels of objective inequality are considered “bad” in both the industrialized and emerging economies covered in the study. People from the industrialized economies appear to be more sensitive to mild levels of objective inequality compared to those from the emerging economies. Subjective inequality, on the other hand, is not considered “bad” in the same industrialized and emerging economies covered in the study. People from both areas appear to tolerate subjective inequality provided it is the outcome of an impartial environment founded upon rules observed by the majority. There, however, remains the need to help people recognize the importance of addressing inequalities in order for them to demand a more equitable distribution of income in society.

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Notes

  1. Another way of looking at the components is as follows: affect is “emotional happiness” and “judgment is “evaluative happiness.” The latter is synonymous with “satisfaction” (e.g., life satisfaction). Notice that the label “happiness” refers to affect or judgment, but the conversational usage of “happiness” is really more about affect. In this paper, subjective well-being, happiness, and life satisfaction are treated as the same concepts. There is another dimension to happiness—separate from but related to affect and cognition—and it is called “eudaimonic happiness,” which is sometimes operationalized to comprise two components, namely “meaning in life” and “purpose in life”.

  2. It is not feasible to correct for time invariant unobservable variables by, say, the first difference approach given that SWB is latent and ordinal. It is also not possible to correct for (possible) endogeneity in the model because the dataset used in the analysis in this paper is not longitudinal in nature. Country dummies can control for the idiosyncrasies within the country groupings but these were not introduced in the analysis in order not to bias the relationship between individual-level indicators and SWB. Just the same, the size of e is not expected to undermine or reverse the direction of relationship between the right- and left-hand side variables. Caution in generalizing the results is therefore well advised.

  3. There is a negative correlation between low subjective freedom and SWB (subjective freedom quintile 2) in the industrialized economies, where objective freedom is high. This result is not found (or at least, the result is not statistically significant) for the same quintile in the emerging economies, where objective freedom is low. Perhaps, the large array of choices available to people in the industrialized economies becomes a negative freedom to people who end up feeling restrained or who cannot act on their options because their incomes cannot make them convert choices to actions. People end up blaming themselves because they cannot shape their own lives or control outcomes.

  4. A “high Gini index” is defined as a value above 30. Admittedly, the definition is rather arbitrary.

  5. Results on the interaction between the Gini index and a dummy representing very low levels of income inequality reveal that too little objective inequality is negatively correlated with SWB. The industrialized economies in the sample with (relatively) low Gini index are Finland (0.27), Germany (0.28), Japan (0.24), Netherlands (0.30), Norway (0.25), and Sweden (0.25). Thus, too much fairness may not raise well-being further when well-being is already at a high level.

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  1. Department of Economics, Ateneo de Manila University, Quezon City, 1108, Philippines

    Edsel L. Beja Jr.

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Beja, E.L. Subjective Well-Being Analysis of Income Inequality: Evidence for the Industrialized and Emerging Economies. Applied Research Quality Life 9, 139–156 (2014). https://doi.org/10.1007/s11482-013-9243-9

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