Niels Wesstergaard-Nielsen
Abstract:
A series of studies in recent years have shown the importance of reference groups for various measures of subjective well-being: satisfaction falls as reference group income rises. However, a smaller recent literature has reached the opposite conclusion, with well-being positively correlated with others' income. These new results have been interpreted as demonstrating Hirschman's (1973) tunnel effect: others higher income might bring about jealousy, but also provides informatin about your own future prospects. The key to understanding how others' income affects my utility is the strength of the correlation between my own future earnings and others' current income. This correlation is arguably far greater for a reference group within the same firm. We here provide some of the first evidence of such signal effects outweighted status or comparisons in th context of developed Western economies, using data with a very clean definition of the reference group and administrative data on earnings. Job satisfaction rises with co-workers' wages. This Hirschman effect is stronger for men than for women, in particular for high educated young males, and in larger firms than in smaller firms. These findings suggest that the signaling effect dominates the jealousy effect and that this phenomenon is strongest for the subgroups that are most likely to be promoted. These results are also consistent with Tournament theory.
Abstract:
A series of studies in recent years have shown the importance of reference groups for various measures of subjective well-being: satisfaction falls as reference group income rises. However, a smaller recent literature has reached the opposite conclusion, with well-being positively correlated with others' income. These new results have been interpreted as demonstrating Hirschman's (1973) tunnel effect: others higher income might bring about jealousy, but also provides informatin about your own future prospects. The key to understanding how others' income affects my utility is the strength of the correlation between my own future earnings and others' current income. This correlation is arguably far greater for a reference group within the same firm. We here provide some of the first evidence of such signal effects outweighted status or comparisons in th context of developed Western economies, using data with a very clean definition of the reference group and administrative data on earnings. Job satisfaction rises with co-workers' wages. This Hirschman effect is stronger for men than for women, in particular for high educated young males, and in larger firms than in smaller firms. These findings suggest that the signaling effect dominates the jealousy effect and that this phenomenon is strongest for the subgroups that are most likely to be promoted. These results are also consistent with Tournament theory.
