The effects of neighbourhood and workplace income comparisons on subjective wellbeing ?

Is a person?s happiness affected by the incomes of her peers? This question is both important and difficult to answer. It is important because an affirmative answer could provide a unified explanation of puzzling empirical phenomena like the Easterlin Paradox ( Clark et al., 2008 ), wage compression in the workplace ( Dube et al., 2019 ), or even the existence of unemployment ( Akerlof and Yellen, 1990 ). And it is difficult to credibly answer because of the endogeneity of peer income in observational contexts. In this paper, we use an exceptionally rich dataset to examine the relationship between a person?s subjective wellbeing We investigate how a person?s happiness is affected by the incomes of her neighbours and coworkers. Using an unprecedentedly rich combination of administrative and survey data, we establish two central results. First, a person?s happiness is sensitive to her ordinal rank within her peer income distribution: people are happier the higher their income rank. Second, workplace rank matters much more than neighbourhood rank. We confirm that our results reflect a causal effect of peer income by implementing sensitivity analyses, identifying off changes in peer income over time for immobile people, exploiting plausibly exogenous moves between workplaces triggered by mass layoffs, and testing for the effects of unobservable group-level confounders. ? 2020 Elsevier B.V. All rights reserved.