Relative Income and Subjective Well-being: an analysis of the relative income effect in the United States and Globally

Abstract

Past research investigating the relative income effect have found mixed results. In the current research, we test the relative income effect in the United States and globally using large population-level surveys and derive three different types of relative income: geographic median income, demographic median income, and random forest predicted income. Results suggest that while the relative income effect exists in the US, magnitudes of the relative income effect differ depending on the type of relative income derived. Across two studies, random forest predicted income consistently showed the largest magnitude, followed by demographic median income and geographic median income. Further, the relative income effect was found to vary across the globe, with cultural and macroeconomic differences between countries rendering possibilities for causal explanations of variations in the effect