Inequality and happiness: When perceived social mobility and economic reality do not match.

Bjornskov, Christian and Dreher, Axel and Fischer, Justina A.V. and Schnellenbach, Jan and Gehring, Kai (2013): Inequality and happiness: When perceived social mobility and economic reality do not match. Forthcoming in: Journal of Economic Behavior & Organization (JEBO)

Abstract

We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective wellbeing for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.

• Item Type: MPRA Paper
• Language: English
• Keywords: Happiness, life satisfaction, subjective well-being, inequality, income distribution, redistribution, political ideology, justice, fairness, World Values Survey
• Subjects: D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; H - Public Economics > H4 - Publicly Provided Goods > H40 - General; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J62 - Job, Occupational, and Intergenerational Mobility; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification

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