Happiness, relative income & self-interest

"A rise in other people's income hurts your happiness" said Richard Layard (Happiness, p46). "The consumption of the rich reduces everone else's satisfaction" say Wilkinson and Pickett in The Spirit Level (p222). Unusprisingly, then, some believe (pdf) that inequality reduces happiness.

Some new research, however, suggests this needs qualifying. Michael Nolan and colleagues estimate that our peers' income does indeed reduce our own life-satisfaction. But only among the over-45s. Among younger people, higher peers' income is associated with greater happiness*.

This difference isn't because young people are more generously-spirited than oldsters. Instead, it's because of what Albert Hirschman called the "tunnel effect". For a young person, someone else's prosperity is a signal of their own good prospects. For older people, though, others' success triggers unhappiness, as they reflect on the opportunities they missed. Whereas a young person sees a high income and thinks "that could be me soon" an oldster thinks "I could have been somebody."

This helps explain a paradox pointed out by Christopher Snowdon. He notes that people migrate from cities with equal incomes such as Sunderland to unequal London. This, he says, is inconsistent with The Spirit Level's claim that inequality creates unhappiness. But it is entirely consistent with Nolan's finding - because it is young folk who move to That London whilst older ones (such as me!) move out.

There is, however, another paradox here. If differences in relative income make young people (on average) happy and older ones miserable, then you'd expect younger people to favour inequality more than oldsters**. But this is not the case; youngsters, traditionally, are more left-wing than oldies.

Among oldies, the paradox is easily resolved. They internalize inequality, and regard it as their personal failing rather than a social problem. Among young people, however, things aren't so simple. It could be that what we have here is the same thing we see when wealthy pensioners support macroeconomic policies that result in low returns on their savings. People don't always support policies that are in their own narrow interests.

* This is consistent with the fact that oldsters are on average happier than youngsters; income comparisons aren't the only thing that matter.

** Strictly speaking, relative income isn't quite the same as general inequality, as the former is inequality amongst folk of similar age and education, but the overlap is close.

Comments

[Al]

Although the paradox might partly be explained by how oldies have higher (taxable) incomes and assets, and are therefore more likely to lose out from redistributive policies. That redistribution requires taxation is probably easier to work out that the effects of some macroeconomic policies.

[Churm Rincewind]

"...youngsters, traditionally, are more left-wing than oldies..."

Is this right? More idealistic, more radical, and less resistant to change, certainly. But my impression is that these are characteristics of young Conservative voters, too. And the ever-astute Alex Salmond's determination to include younger voters in the Scottish referendum would seem to suggest that he believes they're more responsive to alterations in the status quo than older voters, not that he believes they're more left-wing. Labour voters would not suit his agenda at all.

[Metatone]

Snowdon is (I guess purposely since it suits the IEA agenda) economical with the available theory and facts.

1) Migration numbers are not presented. Reason being is that when they are, the absolute numbers suggest that migration is at the margins, once you exclude university ins and outs.

2) Unemployment in areas like Sunderland has been high for a while. If you're young you may in theory be happier in a low paid job in Sunderland than in a higher paid job in the South East. However, if you crunch the actual figures your chances of finding a job are higher in the South East. (As an aside, this is why migrants from outside the UK head for the SE, too.) Guess what, young people are on the margins of the job market and often feel the need to take any action they can to maximise their chances. (They also tend not to have fixed assets, so "flexibility" is one of their "assets".)

2a) Everyone, Snowdon included, tells young people that if they want a job, they should go looking for one. What kind of dishonesty is it to then use the move as evidence that people are choosing to live in London because they find the quality of life higher?

3) Snowdon rebuts, disingenously "it's easier for the semi-skilled to find work in second tier cities" - but isn't that because half the job seekers are prepared to move out? If they stayed, it wouldn't be - and they know it.

[Metatone]

Ignore my number 3, he says the opposite, so in fact, he has no rebuttal at all. He's just another ahistorical economist, pretending that the world came into existence at the moment of the decision of each individual.

[Christopher Snowdon]

Regarding your second footnote, relative income is not just "strictly speaking" different to general inequality. They are fundamentally different and should not be conflated. It is reasonably certain that relative income has some effect on well-being for some people, albeit a much lesser effect than absolute income, but these concerns are very different to the putative concerns about wider income inequality, as I try to explain in Chapter 4 of this:
www.iea.org.uk%2Fsites%2Fdefault%2Ffiles%2Fpublications%2Ffiles%2FIEA%2520Pursuit%2520of%2520Happiness%2520web.pdf&ei=7OXEUfvyLMW70QWruYHoCg&usg=AFQjCNEG-6QiCgdMXrD--cqDo8ajgzJjnQ&sig2=XSnn-CO55p4RLU3hYIK5qw&bvm=bv.48293060,d.d2k

[Christiaan Hofman]

Not very much of a paradox. It's very simple. Young people are forward looking, middle age people are looking at their current situation (and how they got there.) For young people, seeing people with very high income is what they might achieve in the future, so it means that they can get very high incomes. But seeing large inequality makes them less happy, because it means there's a very big risk for themselves in the future, they might very well end up on the wrong side of the distribution, and they see it matters a lot. For middle age people, it's different. When they see very high income people they see what they themselves did not achieve. And seeing inequality gives them a reason to believe it wasn't them, or that they did not do so bad after all, because there's a lot of people below their income scale. It's not rocket science.

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