Subjective Inequity Aversion: How Perceived Unfair Inequality Affects Subjective Well-being

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Sandra Bohmann and Fabian Kalleitner investigate whether it is not objective inequality, but the subjectively perceived unfairness of income differences, that is related to subjective well-being.

The authors use cross-sectional data from the European Social Survey (Round 9, 2018/19) covering 28 European countries (N=14,804). As a robustness check, they additionally analyze panel data from the German SOEP (2017, 2019, 2021).

The results show that life satisfaction and happiness decrease the more unfairly people perceive their own earnings to be. This effect is particularly pronounced when people believe they are unfairly underpaid. Subjective well-being also increases with the perceived fairness of top incomes. For the perceived fairness of bottom incomes, however, no statistically significant relationship with subjective well-being was found. The hypothesis that advantageous inequity is less detrimental to well-being than disadvantageous inequity could not be clearly confirmed statistically. Although the results point in this direction, they are not precise enough to allow for a significant finding, due to the small number of respondents who perceive themselves as advantageously treated. A further finding: perceived unfairness has a stronger effect on well-being when it concerns one's own income than when it concerns the income of others. Individuals are also more sensitive to perceived unfairness at the top of the income distribution than at the bottom: even though many respondents believe that low-income earners are unfairly underpaid, this perception does not translate into as strong a reduction in subjective well-being as the belief that the rich earn unfairly too much.