Neighbors as Negatives: Relative Earnings and Well-Being
Abstract
This paper investigates whether individuals feel worse off when others around them earn more. In other words, do people care about relative position, and does “lagging behind the Joneses” diminish well-being? To answer this question, I match individual-level data containing various indicators of well-being to information about local average earnings. I find that, controlling for an individual's own income, higher earnings of neighbors are associated with lower levels of self-reported happiness. The data's panel nature and rich set of measures of well-being and behavior indicate that this association is not driven by selection or by changes in the way people define happiness. There is suggestive evidence that the negative effect of increases in neighbors' earnings on own well-being is most likely caused by interpersonal preferences, that is, people having utility functions that depend on relative consumption in addition to absolute consumption.
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There are differences in the income-SWB relationship depending on what measure of SWB is used and whether other people's income is included in the assessment.
“although there are some differences depending on what measure of SWB is used (Kahneman and Deaton, 2010), and whether other people's income is included in the assessment (Luttmer, 2005;Layard et al., 2010).”
From Measuring Subjective Wellbeing: Recommendations on Measures for use by National Governments (2012) · cites this paper as Luttmer, 2005
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- Authors
- Luttmer, E. F. P.
- Affiliations
- Harvard University (US)
- Corresponding author
- Luttmer, E. F. P.
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 2005-08-01
- Volume
- 120
- Issue
- 3
- Pages
- 963-1002
- ISSN
- 0033-5533 (ISSN-L)
- 1531-4650
- OpenAlex
- W3125532899
- Cited by
- 1,583
- References
- 4
- Citations by year
- 2026: 11 · 2025: 24 · 2024: 27 · 2023: 47 · 2022: 39 · 2021: 60 · 2020: 75 · 2019: 79 · 2018: 76 · 2017: 86 · 2016: 99 · 2015: 127 · 2014: 111 · 2013: 131 · 2012: 116
- FWCI
- 81.62
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- The Quarterly Journal of Economics (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Psychology › Social Psychology › Psychological Well-being and Life Satisfaction
- Social Sciences › Sociology and Political Science › Income, Poverty, and Inequality
- Social Sciences › Health › Health disparities and outcomes
- Keywords
- relative earnings, subjective well-being, happiness, neighborhood income, relative income, interpersonal preferences, self-reported happiness
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