Does Inequality Make People Unhappy? Evidence of the Link Between Inequality of Opportunity and Subjective Wellbeing in Europe

This paper aims at establishing a clear link between different types of inequality and happiness in Europe and in its regions (NUTS 1 and 2). Income inequality and inequality of opportunity are analysed separately to judge which one has the largest impact on happiness and in both cases, how this impact changes over time. Whereas recent pieces of research exist on the link between happiness and income inequality (Berg & Veenhoven (2010); Fahey & Smyth (2004)), the effects of inequality of opportunity on subjective wellbeing have so far remained concealed from scientific attention. Despite having some well-established differences between perceptions in the US and in Europe, probably due to differences in perceived social mobility (Alesina, Di Tella & MacCulloch, 2004), research on this topic has found very small effects of national inequality on the level of happiness in cross-national studies (Wilkinson & Pickett, 2010). A new theoretical approach based on social cognition challenges the validity of this national link suggesting that the impact of at least income inequalities on happiness should be larger within smaller regional units (Senik, 2004; Winkelmann & Winkelmann, 2010). According to this stream of thoughts, people are assumed to compare themselves with the closest group of reference with their geographical living and working space. Schneider (2012a) has found for instance strong effects of the link between economic inequality and subjective wellbeing at a German federal level. Neighbours seem also to be set as reference when people have a high tendency to compare their income with others (Schneider, 2012b) and colleagues appear to be among the most likely benchmarks for the majority of comparisons (Clark & Senik, 2010).  Other studies suggest that there are some population groups relatively more sensitive to inequalities, namely those who overestimate their relative income position. As a result, these groups tend to demand higher levels of redistribution when informed of their true ranking (Cruces, Perez-Truglia, & Tetaz, 2013). Furthermore, some evidence shows that people with a low general trust are also subjected to greater unhappiness during years of high inequality (Oishi, Kesebir & Diener, 2011) and that especially the poor are more inclined to have a lower subjective wellbeing when faced to high income inequalities (Oshio & Urakawa, 2014).

The database used for this analysis is the European Social Survey (ESS). This database is an open access, academically driven, cross-national survey conducted every two years to monitor social changes across Europe since 2002. The ESS has different modules introduced in specific years according to the topic of interest. Permanent modules deal with media and social trust, politics, subjective well-being, socio-demographic characteristics also at a household level (gender and age) and with human values.  The principle questions used will be the question on the level of happiness (Taking all things together, how happy would you say you are?), measured on a scale from 0 (extremely unhappy) to 10 (extremely happy). Information about the level of inequality will be taken with due adjustments from national or regional indices derived from the Statistics on Income and Living Conditions (SILC). The methodology used for this analysis is based on fixed-effect regressions including dummies for the six years of the ESS and for all the European countries/regions analysed.

Results emphasise the importance of income inequalities on happiness depending on the geographical level of reference. Moreover, inequality of opportunity seems to be an important form of inequality to take into account when dealing with subjective wellbeing. Inequality of opportunity indeed affects subjective wellbeing in a negative way. Furthermore, differences in population groups according to their socioeconomic status clearly define which social classes tend to be more touched by social and economic inequalities over time. 

References

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