SOEP Brown Bag Seminar

The seminar will share two connected papers, one newer, and in more need of feedback, than the other. The premise of both is the received wisdom that income rank matters for welfare, in particular life satisfaction. In most discussions, however, income comparisons are limited to the national population and evidence is correlational.

In the first paper, we report on an experiment that randomized individuals from a representative sample of mid-career Finns to receive personal rank information about educational, municipal, occupational, age, or national reference groups. Our data, which integrates experimental and register sources, finds that new information about rank causes differences in satisfaction with disposable income, perceived fairness of income, and wage satisfaction, but not life satisfaction. We find substantial variation in the effects across outcomes and reference groups. In particular, for almost all welfare measures, the effect of information about national rank is both weak and insignificant.

In the second, we recognize that individuals can choose whom to compare themselves to, and that this decision has important welfare consequences. We report on the results of an additional condition of the first experiment that elicited the income rank beliefs of a representative sample of mid-career Finns in various reference distributions and then allowed them to choose which rank would be revealed to them. We characterize the choice of reference population - almost half of all individuals care most about rank within occupation while fewer than six percent are interested in national rank - and its implications for individual well-being.