The effects of neighbourhood and workplace income comparisons on subjective wellbeing

Abstract

We investigate how the incomes of a person’s neighbours and coworkers affect her happiness, using survey data on subjective wellbeing linked to unprecedentedly rich administrative data on the characteristics of survey respondents’ peer groups. Linear regressions of subjective wellbeing on peer income variables establish that people care exclusively about their ordinal rank within their peer income distribution, that workplace rank matters much more than neighbourhood rank, and that workplace comparisons are driven primarily by fairness concerns. We confirm that our results reflect a causal effect of peer income by implementing sensitivity analyses, identifying off changes in peer income over time for immobile people, exploiting plausibly exogenous moves between workplaces triggered by mass layoffs, and testing for the effects of unobservable group-level confounders.