Relative-income effects on subjective well-being in the cross-section

Recent work suggests that a person's subjective well-being (SWB) depends to a large degree on relative-income. Focusing on the underlying identification, this paper makes four contributions to this literature: it describes the aggregation problem with past studies, implements an estimation strategy to overcome this problem, finds micro-level evidence in support of the hypothesis that relative-income does matter in individual assessments of SWB, and uses cross-section estimates to replicate the aggregate time-series. The evidence further indicates that relative-income effects may be smaller at low income levels. The results are obtained from ordered probit techniques and the general social survey (GSS). (C) 2001 Elsevier Science B.V. All rights reserved.