Abstract This study investigates the effect of absolute income and relative income on health in the light of medical evidence indicating that the individual’s position in the social hierarchy undermines his or her mental and physical health. It uses an instrumental variable estimation methodology that controls for the ‘endogeneity’ problem to statistically identify the social gradient in physical and mental health. The paper shows that individuals’ own income has a positive, but modest effect on health. Absolute income appears to affect only the objective measures of health. Importantly, relative income- as a proxy for social status and position in the social hierarchy - has a significant effect on all measurements of health, with individuals higher in the social ladder enjoying better health. Finally, the results shown that individuals from families that were well-off financially (when at the age of 14) having better physical and mental health.European Commissio
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