"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.