Relative income
The finding that people judge their income against others (neighbours, colleagues, friends, their own past) and not only by what it buys. The same pay can feel like plenty or like falling behind depending on who is nearby.
What drives it
Comparison tells people where they stand when there is no fixed measure of enough. Useful for identification because dissatisfaction that rises after a move, a pay leak or a school-gate conversation, with no change in income, may point here.
How it shows
Work
A pay rise feels good until a colleague’s higher figure leaks. Pay transparency or a new hire on more money sets off resentment, job searching or a sudden drop in effort.
Relationships
After moving to a richer area the family feels poorer on the same salary. Friendships cool when one couple starts earning much more. Holidays and school fees become a scoreboard.
Self
Notice whose figures you know and check, and how you feel about your income after scrolling through other people’s homes and holidays.
What tells it apart
Social comparison: Social comparison is the general habit of measuring oneself against others on any dimension. Relative income is the money version, with its own research showing effects on satisfaction and job behaviour.
Envy: Envy is the painful feeling, often with hostility, towards someone who has more. Relative income effects may show without envy of anyone in particular, as a vague sense of falling behind.
Money status: Money status is a belief that worth equals net worth. Relative income is a widespread effect that may show even in people who don’t tie their worth to money.
A test
Ask whether they felt better or worse about their pay before and after they learned what a colleague or friend earns. A shift with no change in their own income may point to relative income.
Questions to carry
- Whose salary or house does the person bring up most, and how do they sound when they do?
- If everyone I know earned half what I do, how would I feel about the same payslip?
How strong the research is
moderate. Luttmer (2005) found that at the same own income, people whose neighbours earned more reported lower happiness, more so among those who socialised with neighbours, and Card and colleagues (2012) found staff who learned they were paid below the median for their unit were less satisfied and more likely to look for another job. But a Danish study found richer neighbours went with higher satisfaction, and a Dutch lottery study found neighbours’ winnings did not lower happiness, so who people compare with is still disputed.
Where it comes from
Richard Easterlin, 1974. Erzo Luttmer, Neighbors as negatives, 2005. Card, Mas, Moretti and Saez, Inequality at work, 2012