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Income Status and Life Satisfaction.

Felix R FitzRoy¹, Michael A Nolan²

¹University of St Andrews, St Andrews, UK.

Journal of Happiness Studies

|May 17, 2021

Summary

Income rank and reference income are both crucial for happiness, challenging previous research. Findings reveal significant differences across age and retirement groups regarding their impact on life satisfaction.

Area of Science:

Social Sciences
Economics
Psychology

Background:

The literature consistently recognizes income rank and relative income as key indicators of social status.
Recent studies suggest income rank significantly outweighs reference income in explaining life satisfaction.
Some research indicates that absolute or household income may lose statistical significance when rank is considered.

Purpose of the Study:

To empirically test the hypothesis that income rank dominates reference income in determining life satisfaction.
To investigate the relative importance of income rank, household income, and reference income using a large UK panel dataset.
To examine how these relationships differ across age and retirement status subgroups.

Main Methods:

Analysis of a large UK longitudinal panel dataset (British Household Panel Survey and Understanding Society) spanning 1996-2017.

Keywords:

Income rank Life satisfaction Relative income

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Econometric regression models were employed to assess the significance of income rank, household income, and reference income.

Subgroup analyses were conducted based on age and retirement status to identify differential effects.

Main Results:

Contrary to previous findings, income rank, household income, and reference income were all found to be significant explanatory variables for life satisfaction.
The relative importance of these income measures varied significantly across different age and retirement subgroups.
The results remained consistent whether using relative income rank or absolute income rank.

Conclusions:

Both income rank and reference income are important determinants of happiness and life satisfaction.
The impact of different income measures on well-being is not uniform and is moderated by demographic factors like age and retirement status.
Future research should consider the multifaceted nature of income's influence on subjective well-being, accounting for various income metrics and subgroup differences.