Why Income Inequality is Dissatisfying – A Project on the Consequences of Economic Inequalities | Max-Planck-Institut für Sozialrecht und Sozialpolitik - MPISOC

Research Projects

Law and Economics

Why Income Inequality is Dissatisfying – A Project on the Consequences of Economic Inequalities

Economic disparities often have detrimental consequences for the individual and his/her wellbeing. In fact, when comparing wellbeing and inequality indicators across European countries, scholars often find individuals residing in more equal societies to be more satisfied with their lives than individuals living in societies with higher inequalities. Importantly, economic inequality is harmful for all — not just for those at the bottom of the income ladder. As such, individuals do not necessarily need to earn less than others to see their own lives in a more negative light, they may merely be surrounded by higher disparities than others. As economic inequalities continue to rise in many European countries, knowing the consequences of income inequality becomes increasingly important. Within this context it is essential to understand why income inequality should be dissatisfying after all.

This project builds on prior research, which I conducted during my pre-doctoral career, and is concerned with the relationship between rising economic inequalities on the one hand and the person’s subjective wellbeing on the other. Thereby, the project follows a clearly functionalistic perspective by judging inequality on its outcomes for the individual. This view needs to be clearly distinguished from normative philosophical approaches that analyse the circumstances in which inequalities may seem justified, as well as empirical approaches that analyse and judge inequalities by policy standards or observations on the acceptance or tolerance for inequality in society.

Specifically, the project investigates the mechanisms that explain when and why individuals are less satisfied when being exposed to more inequality. In this context, I recently examined whether subjective social status — a person’s perception of his/her standing in the social hierarchy—is an important psychological mechanism that drives the inequality-satisfaction link. I proposed two paths whereby income inequality becomes an important contextual factor in self-evaluation. In the first, income inequality may lower an individual’s social status percep­tion by providing referential standards for social comparison. This, in turn, may reduce the individual’s subjective well-being and would suggest that subjective social status functions as an important mediator linking income inequality with life satisfaction. In the second path, income inequality functions as a moderator, enhancing the salience of social comparison and increasing the importance of social status characteristics for the production of life satisfaction. In this case, subjective social status will have a stronger effect on life satisfaction if income inequalities are high. Using data of the European Social Survey for 2012/2013, I find for Europe that subjective social status is indeed related to both: the degree of income inequality in a society as well as the life satisfaction reported by the individual. Importantly, individuals living in more unequal societies perceive themselves, on average, to have a lower social status than individuals living in more equal societies. I also find income inequality increases the importance of social status for the production of life satisfaction. While individuals with a high social status are generally more likely to also report a higher life satisfaction, this relationship is even more pronounced when inequalities in a society are high.

Although this study is only a first step of a larger research enterprise, it clearly indicates the relevance of self-evaluation processes for research on the consequences of income inequality. Future research will have to show whether evidence for the proposed hypotheses can also be found outside of Europe and what role other psychological as well as institutional mechanisms may play. Here, social justice theory may provide further insights. While self-evaluation processes are clearly limited to the individual and his/her self-perception, justice theory also points to the importance of perceptions and evaluations of distributive processes. Further, institutional mechanisms may provide valuable insights into how inequalities are transformed and become apparent in society. Institutions may buffer or excel their negative consequences depending on the distributive rules they entail. In this regard, country-comparative research on tax regulations as well as other redistributive social security measures may provide further insights on the question when and why economic inequalities may matter for the individual.

The present study has been published in the European Sociological Review in 2019. Further publications on this subject are planned in the near future.

Contact Person(s)

Dr. Simone M. Schneider

Presentations and Contributions
Dr. Simone M. Schneider
Macht Ungleichheit (un-)zufrieden? Die Bedeutung der persönlichen Statuswahrnehmung
Dr. Simone M. Schneider
Ungleich = Unzufrieden? Statuswahrnehmung und der Zusammenhang zwischen Einkommensungleichheit und Lebenszufriedenheit
Dr. Simone M. Schneider
Inequality and Life Satisfaction