Economic Satisfaction and Income Rank in Small Neighbourhoods

Abstract

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Local neighbors as positives, regional neighbors as negatives: Competing channels in the relationship between others’ income, health, and happiness

“…Further, our framework organizes variant explanatory channels. Our empirical results also corroborate those in Deaton & Stone (2013), Brodeur & Fleche (2015), and Clark et al (2009a) which find that the relationship between neighbors' income and SWB is increasingly negative as the geographically-based reference group expands in population and size from the ZIP-code level. We cannot speak to the inversion of this relationship that Brodeur & Fleche (2015) identify when analyzing finer levels of geographic proximity than ZIP codes.…”

“…Lastly, using Danish panel data, Clark et al (2009a) find that economic satisfaction significantly increases with neighborhood median income (~600 households) but is unrelated to municipality median-income. Including a control for one's rank in the neighborhood income distribution increases the magnitude of the positive relationship between economic satisfaction and neighborhood median income but significantly diminishes the positive relationship between economic satisfaction and own income.…”

“…It has been used as a potential explanation for the Easterlin Paradox-whereby, over time at the national level, average SWB does not increase with per capita GDP (Easterlin, 1974;Frank, 2012). 3,4 The relationship between others' income and SWB has been studied using different benchmarks for reference income: geography (e.g., Brodeur & Fleche, 2015;Clark et al, 2009a;Clark & Senik, 2012;Deaton & Stone, 2013;Luttmer, 2005); occupation (e.g., Senik, 2004;2008); demographic characteristics like age, sex, race, and religion (e.g., Dahlin et al, 2014;FitzRoy et al, 2014;Perez-Asenjo, 2011); education (e.g., Graham & Felton, 2006); friends and family (e.g., Senik, 2009); one's own past (e.g., Knight et al, 2009;Senik, 2009);and combinations thereof (e.g., Ferrer-i-Carbonell, 2005;McBride, 2010). …”

“…As in these two papers, our results do not align with the aforementioned Luttmer (2005) result that the neighbors-income coefficient is of the same magnitude but opposite sign as the own-income coefficient, or the Kingdon & Knight (2007) result that the neighbors-income coefficient is of the same sign and greater magnitude than the own-income coefficient. In Clark et al (2009a), increasing neighborhood median income increases economic satisfaction at roughly 60% (nine times) the rate of increasing own income when not controlling (controlling) for rank.…”

“…A handful of studies, however, present evidence that the relationship between others' income and well-being is complex, with multiple explanatory channels (positive and negative) at play concurrently (e.g., Brodeur & Fleche, 2015;Clark et al, 2009a;Deaton & Stone, 2013;Kingdon & Knight, 2007;Senik, 2008).…”