If happiness is relative, against whom do we compare ourselves? Implications for labour supply

Abstract

This paper addresses two important issues: the nature of the reference group to which individuals compare themselves, and the implications of social comparisons for labour supply. It identifies age as the main characteristic defining the reference group. Race, sex and religion are other relevant features in its determination. It provides micro-level evidence that social comparisons influence the hours an individual works. Specifically, if her income is lower than her reference group income, she will work more. It also shows that for males, white people and people living in rural areas the effect of relative income on both happiness and labour supply is greater.