Inequality and happiness: When perceived social mobility and economic reality do not match

Abstract

We argue that perceived fairness of the income generation process affects the association between income inequality and subjective well-being, and that there are systematic differences in this regard between countries that are characterized by a high or, respectively, low level of actual fairness. Using a simple model of individual labor market participation under uncertainty, we predict that high levels of perceived fairness cause higher levels of individual welfare, and lower support for income redistribution. Income inequality is predicted to have a more favorable impact on subjective wellbeing for individuals with high fairness perceptions. This relationship is predicted to be stronger in societies that are characterized by low actual fairness. Using data on subjective well-being and a broad set of fairness measures from a pseudo micro-panel from the WVS over the 1990-2008 period, we find strong support for the negative (positive) association between fairness perceptions and the demand for more equal incomes (subjective well-being). We also find strong empirical support for the predicted differences in individual tolerance for income inequality, and the predicted influence of actual fairness.

Theorizing the impact of fairness perceptions on the demand for redistribution

“…The present study confirms previous research on the impact of fairness judgements on the DFR (Alesina and Giuliano 2010;Alesina and La Ferrara 2005;Bjørnskov et al 2013;Corneo and Grüner 2002;Fong 2001;Fong, Bowles, and Gintis 2005;Iglesias, López, and Sántos 2013;Isaksson and Lindskog 2009;Kuhn 2010;Linos and West 2003;Miles 2014). It adds to a mounting body of evidence that shows the strong impact of normative evaluations of income distribution on redistribution preferences.…”

“…The first focuses on individual beliefs about meritocracy, while the second focuses on social mobility. Within the first approach, a number of studies analyse how beliefs on whether incomes are determined by factors within or beyond individuals' control affect redistribution preferences (Alesina and Giuliano 2010;Alesina and La Ferrara 2005;Bjørnskov et al 2013;Corneo and Grüner 2002;Fong 2001;Fong, Bowles, and Gintis 2005;Georgiadis and Manning 2012;Iglesias, López, and Sántos 2013;Isaksson and Lindskog 2009;Kuhn 2010;Linos and West 2003;Miles 2014). These studies evaluate survey questions that ask to what extent luck, family background, race or social ties as well as effort or skill determine incomes.…”

Winners and Losers in Transition: Preferences for Redistribution and Nostalgia for Communism in Eastern Europe

“…As mentioned earlier, income inequality has increased in Eastern Europe and preferences for redistribution are persistently high. In the light of increased income inequality, high preferences for redistribution are not necessarily irrationalredistribution arguably reduces income differences, and there is evidence that inequality depresses happiness (Blanchflower and Oswald, 2003, Graham and Felton, 2006, Winkelmann and Winkelmann, 2010, Bjørnskov et al, 2013. Hence, redistribution may bring about more happiness if it reduces effectively inequalities and provide the safety that people need.…”

Top income shares inOECDcountries: The role of government ideology and globalisation

“…The authors suggest that institutions providing certain income insurance and education may have moderated effects of globalisation on income inequality. 41 The demand for equal incomes also depends on perceived fairness in the population (Bjørnskov, Dreher, Fischer, Schnellenbach, & Gehring, 2013). 42 To identify a causal effect, we would need a valid instrumental variable.…”

“… The demand for equal incomes also depends on perceived fairness in the population (Bjørnskov, Dreher, Fischer, Schnellenbach, & Gehring, ). …”