Reference standards for income comparisons: evidence from immigrants return visits

The present paper shows evidence consistent with Falk and Knell's (2004) prediction that individuals' reference income increases with ability. To overcome the difficulty that the reference income is not observed in most data sets. I use indirect evidence from immigrants return visits to their countries of origin. Falk and Knell's model predicts that more educated immigrants are less likely to have returned to their country of origin for a visit, and that they are more likely to have difficulty feeling at home when they do return for a visit. Both predictions are tested using data from the German Socio-Economic Panel and cannot be rejected.