Relative Income and Subjective Economic Status: The Collectivist Perspective


LI Tao, FANG Ming, FU Lin and JIN Xingye

Summary: Ever since Duesenberry developed his relative income hypothesis in 1994,studies in economics have evaluated the considerable impact of the“comparison effect”or“demonstration effect”on economic behavior and welfare levels.An enormous body of research has empirically verified the effect of relative income on economic behavior and welfare levels as measured by happiness or life satisfaction. In reality,it is normally the subjective perception of the objective relative income,rather than the actual objective relative income,that impacts an individual. Subjective economic status is defined as a person's subjective perception of an objective economic position. Subjective perceptions such as relative income or consumption levels are important concepts in the study of subjective welfare. A subjective perception of a relative economic position is also related to subjective cognition of social identity or position on the social-economic ladder. Unlike objective relative incomes or expense levels,subjective economic status is influenced by psychological features,cultural traditions,and the social environment and is heterogeneous across individuals and areas.Given that the willingness of individuals to engage in social comparisons varies with cultural endowments,the impact of objective income on subjective economic status may also vary across different social-cultural environments. We assess how objective relative income influences subjective economic status and how the impacts vary across different cultural environments. The results lead to a better understands how the subjective welfare of individuals is formed and the regional variations in subjective welfare that are due to cultural differences. This introduces a new perspective to studying the impact of economic development,technical advances,and cultural traditions on individuals' welfare levels and behavior.

Using the collected survey data from the China Family Panel Studies ( CFPS 2010 and 2012) ,we evaluate the main factors,including objective relative income,that affect individuals' subjective economic status. Based on the finding that there exists a significant mismatch between objective relative income and subjective economic status,we find that although the objective relative income of an individual plays an important role in determining subjective economic status,other factors including household socioeconomic characteristics,education level,gender,marital status,religion,self-evaluated health level,future expectations,and psychological features also have significant effects on subjective economic status.More specifically,we find that higher family income and education levels and better health and life expectancy significantly correlate with higher subjective economic status,and that married people and males have significantly higher subjective economic status than unmarried people and females. There are also significant differences in subjective economic status across employment and religious types. Furthermore,we consider the role of culture in subjective economic status and find that objective relative income has a stronger effect on subjective economic status in areas with collectivist cultures than in areas with individualist cultures. This conclusion is consistent with a key feature of collectivism: as collectivists care more about their relative position in the collective,they might be more sensitive to subjective perceptions than to objective relative income.

Our study makes several potential contributions to the literarure. (1) We supplement the literature on the factors that influence subjective economic status and subjective economic welfare.(2) We construct an index for evaluating collectivism and assessing the impacts of objective relative income on subjective economic status across areas with different culture endowments.(3) We introduce a possible mechanism to explain how culture affects individuals ' welfare and incorporates culture factors into a microeconomic research framework

Published online by Economic Research Journal.