Income Inequality and Subjective Well-Being: Assessing the Relationship

[We’re pleased to welcome author Ivana Katic of the Yale School of Management.  Katic recently published an article in Business & Society entitled, “Income Inequality and Subjective Well-Being: Toward an Understanding of the Relationship and Its Mechanisms,” co-authored by Paul Ingram of Columbia Business School. Below, Katic details the inspiration for the study:]

What inspired you to be interested in this topic? Inequality has always been a major topic in sociology. In the academic community and beyond, this interest in inequality simply exploded in the wake of the financial crisis of 2008, as well as the Occupy protests around the world. Despite the amount of attention that income inequality has been receiving in empirical studies across psychology, sociology, economics as well as political science, my co-author Paul Ingram and I noticed that the literature was still quite mixed in regards to the effects of income inequality. In fact, extant studies had found positive, negative and neutral effects of income inequality on the subjective wellbeing and happiness levels of individuals. This lack of a consensus, we thought, was quite interesting, especially in contrast to the commonly held belief that inequality has exclusively negative consequences for individuals, as well as communities—ranging from lowered trust and health and increased crime levels to, ultimately, lower overall wellbeing. We decided that the time was ripe to pursue a comprehensive study that would allow us to better understand how income inequality affects subjective wellbeing (SWB). Such a study would also allow us to better understand the channels through which income inequality may affect SWB. We set out to answer these important, and particularly timely questions, by constructing a rich cross-country dataset including 65 countries from 1995 to 201B&S_72ppiRGB_powerpoint.jpg1.

Were there findings that were surprising to you?Given the common notion that income inequality is always detrimental to human flourishing, we were initially surprised to see that income inequality had a strong and very robust effect on SWB in our analysis. On the other hand, this was not the first time a study had found a positive effect—so there was clearly precedent for our finding in previous literature on the topic. However, to be quite certain, we threw everything we could at our results in a variety of robustness tests (including different operationalizations of our key independent variable and our dependent variable, as well as a series of different estimation techniques). Our results never budged.

How might one use the study’s main finding of a positive main effect of income inequality on SWB to create policy? While our main effect suggests that decreasing income inequality may not increase SWB, we caution against using our study as justification for lowering taxes and increasing inequality. First, our results do not necessarily indicate that income inequality is never a negative for a variety of other life outcomes. Second, we cannot rule out that income inequality may increase beyond the range studied in our paper, and we similarly cannot guarantee that it would not have negative effects beyond that range. Third, in a separate working paper, we find that any changes in the level of income inequality are uniquely damaging to SWB, suggesting that fluctuating levels of inequality may be particularly psychologically taxing for individuals to adjust to.

However, our study has another way forward for policy. A particularly important aspect of our study is that it sheds light on the mechanisms of income inequality’s relationship with SWB. Specifically, we found that income inequality has more positive effects on individuals who are relatively better off, those that perceive the income generation process to be fair, and surprisingly, those that do not perceive a lot of social mobility in their society. It is with these mechanisms in mind that we suggest constructing policies that focus on increasing perceptions of fairness and reducing social comparisons to the superrich.

In terms of future research, we hope that our study paves the way for other work that might further unravel the complexity of income inequality’s effects. In particular, future scholars should continue to investigate how income inequality may impact individuals differently depending on who they are, and where they live. Finally, the role of organizations in affecting levels of income inequality (and consequently, SWB) is also a very promising area of study. Given the complexity of this social phenomenon, as well as its highly significant implications for policy, future work on all of these topics is direly needed.

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This entry was posted in Business, Diversity, Finance, Income, Uncategorized by Cynthia Nalevanko, Editor, SAGE Publishing. Bookmark the permalink.

About Cynthia Nalevanko, Editor, SAGE Publishing

Founded in 1965, SAGE is the world’s leading independent academic and professional publisher. Known for our commitment to quality and innovation, SAGE has helped inform and educate a global community of scholars, practitioners, researchers, and students across a broad range of subject areas. With over 1500 employees globally from principal offices in Los Angeles, London, New Delhi, Singapore, Washington DC, and Melburne, our publishing program includes more than 1000 journals and over 900 books, reference works and databases a year in business, humanities, social sciences, science, technology and medicine. Believing passionately that engaged scholarship lies at the heart of any healthy society and that education is intrinsically valuable, SAGE aims to be the world’s leading independent academic and professional publisher. This means playing a creative role in society by disseminating teaching and research on a global scale, the cornerstones of which are good, long-term relationships, a focus on our markets, and an ability to combine quality and innovation. Leading authors, editors and societies should feel that SAGE is their natural home: we believe in meeting the range of their needs, and in publishing the best of their work. We are a growing company, and our financial success comes from thinking creatively about our markets and actively responding to the needs of our customers.

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