Incometheir job if they knew the site existed (and thus their col-
leagues’ salaries) than if they did not.
There is now a major literature on social comparisons,
and it would require a whole book to do it justice.^23 But as
the survey by Clark, Frijters, and Shields (2008) shows, com-
parisons with other people’s incomes play a big role in most
people’s life- satisfaction. We can do no more than illustrate
this from the surveys we are using in this book.
Table 2.3 is a more general version of our standard pooled
cross- section equation, where we include comparison effects
for income, education, unemployment, and family forma-
tion. For log income comparisons we use the average income
in the same sex, age group, region, and year in question.^24 The
negative effects of comparator income show up clearly (even
with regional and year dummies included). The size of the
effects is remarkable. In Britain, Germany, and Australia the
negative effect of comparator income is roughly as large as
(or even larger than) the positive effect of your own income.
This means that all you care about is your income relative
to that of your comparators. If this is true, economic growth
cannot increase average happiness since the average of rela-
tive income is by definition constant. In such a case only re-
duced inequality of income can increase average happiness.^25
In the United States absolute income also matters, but,
if someone’s income increases, the total social benefit is
substantially less than the private benefit to that individual.
For example, taking the US estimates, when one individual
raises his or her income 10% he or she gains 0.031 points.
But the other N comparators find that their average com-
parator income has risen by 10%/N. So their total loss of
life- satisfaction is N times 0.17 times 10% /N. The net social
gain is 0.031−0.017, which is roughly half the private gain.