The purpose of this study was to test the effects of income and reference group income on well-being while controlling for a range of social psychological variables. A random sample of 1033 residents in a regional Australian city were surveyed by mail on a number of variables including subjective well-being, sense of community, attitudes toward their political officials, civic participation, perceptions of city life, and socio-demographics. Three general findings are reported. First, income had a significant influence on well-being, but individuals’ perceptions of their access to health services had a larger effect. Second, we found that the relationship between well-being and some of its determinants (e.g., health service perceptions) varied significantly between low and high levels of income at the household level and at the regional level. Finally, reference group income was not a significant predictor of well-being in any of the analyses we conducted. These results are discussed in light of the results from previous research in this area.
Economic analyses of individual subjective well-being (i.e., happiness, life satisfaction, and quality of life) assume that higher levels of consumption are positively associated with personal utility (Stutzer & Frey, 2004). In empirical terms, the assumption is reflected in econometric models that regard well-being as an increasing monotonic function of income. However, the assumption has received mixed support from empirical studies of the relationship between income and life satisfaction at the individual (Clark & Oswald, 1994) and national (Diener, Diener, & Diener, 1995) levels of analysis. At the individual level, the focus of this research, zero-order correlations between income and well-being are frequently in the vicinity of 0.10–0.20 (Cummins, 2000, Diener and Biswas-Diener, 2002, Diener et al., 1993, Easterlin, 2001 and Haring et al., 1984).
One explanation for the low correlation between income and measures of subjective well-being was proposed by Easterlin (1995) who claimed that individuals compare their own incomes with the income of their reference group and it is this comparison that influences well-being. More specifically, higher reference group income relative to one’s own, has a downward effect on well-being. In Easterlin’s words “each individual’s utility or subjective well-being varies directly with his or her own income and inversely with the average income of others” (p. 36). In this sense, individual well-being is thought to be a function of one’s own income in absolute terms as well as one’s income relative to the income of an important reference group.
In previous studies, the reference group has been defined to include whole societies, residents living in the same neighbourhood, and all individuals with similar education levels, age, and country-of-residence (Caporale et al., 2009, Clark et al., 2008 and Ferrer-i-Carbonell, 2005). As recognised by Ferrer-i-Carbonell, many other variables might be used to define the reference group. But, in whatever manner the reference group is defined, researchers seek to articulate a measure of the income of groups of broadly similar people (Clark et al., 2008 and Kingdon and Knight, 2007).
