The Influence of Relative Income on the Level of Subjective Well-Being

The present paper is based on data from Wave 25 conducted in 2016 by Russian Longitudinal Monitoring Survey using the combination of variables from household and individual datasets, with the sample consisting of 3164 observations. The aim of the research is to identify the sign of the effect of relative income effect on a regional basis on an individual assessment of subjective well-being in Russia. In previous works on the topic of relative income and its effect on the level of personal well-being, there is no absolute agreement on the direction of relative income coefficient sign. In various previous studies, researchers came to a conclusion that it may be negative, whereas in other papers suggested a positive one. Claudia Senik (2004) found the evidence of a positive relationship between subjective well-being measure and relative income in Russia during the transition period of 1994-2000. The author explained this phenomenon, recalling Albert Hirschman's work (1973), according to which the individual perceives a change in relative income as an 'information' signal about the nature of the change to his earnings in the future. This situation holds especially true for immature transition economies with a high degree of uncertainty, and particularly for people with low-income level. The present study does not support previous evidence on the positive effect of relative income effect obtained in Russia. It was found that relative income influences subjective well-being in a negative way.These findings are consistent with other studies in the area (Clark and Oswald (1996), Ferrer-i-Carbonell (2005), Luttmer (2005)).