Friday, October 1, 2010

Relative and Absolute Income and Satisfaction

A new paper by some University of California at Berkeley economists finds that people are dissatisfied if they know they make lower than the average pay of their peers, but are no more satisfied if they know they make above the average salary.  [HT: NY Times Economix Blog]

This paper is interesting because for a long time economists have had trouble pinning down how happiness and wealth (or satisfaction and income) are related. Sometimes it appears that it is relative and sometime it appears it is absolute.  Generally it has been thought that relative comparisons matter a lot.  So you are happy with your new Toyota as long as your neighbor doesn't have a new BMW, or in global terms if you are relatively rich in a poor country you are as happy as a relatively rich person in a wealthy country even though the consumption patters are entirely different.

Anyway, this paper may provide some insight as to why this has been hard to pin down: it appears in this instance at least that it is asymmetrical.

I wonder if overall job satisfaction goes up in recessions when you see lots of unemployment and plunges during periods of high employment?  [There is probably an answer, but I am too rushed to Google it - let me know if you find it]

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