Do income inequalities impair an individual's life satisfaction? – Dismantling an empirical artefact

Sociologists expect economic inequalities to be detrimental to subjective experiences of well-being, e.g. life satisfaction and happiness, but research into the issue remains inconclusive. The inconsistent results may reflect the individual researcher’s selection of (a) the geographic unit, (b) the indicator measuring inequality, and/or (c) the specific (sub-) population.

This paper calls for the theoretical reflection of the methodological choices made by researchers analysing the impact of income inequality on life satisfaction. Referring to approaches in social cognition theory that propose social perceptions as influential mechanisms (thereby bridging the macro-micro gap), we assume to find the impact of income inequalities on life satisfaction to be greater within smaller regional units where the polarization of income differences is especially high. We expect upper and lower income groups to be equally vulnerable to these influences, albeit for different reasons.

The analyses are based on data from the German Socio-Economic Panel Study (SOEP) from 2005 and 2006. We estimate the impact of income inequality on life satisfaction using multi-level regression models, and we differentiate between different geographic units (federal states (Nuts1), planning regions (ROR), district level (Nuts2)) using different measures of income inequality (Gini-Index vs. 90/10 Ratio) for specific subpopulations (e.g., upper vs. lower income groups).

A first set of analyses yields ambivalent findings on the effect of income inequality on life satisfaction. Next to east-west-differences, the Gini-Index proved to be one of the most important predictors for life satisfaction at the federal state level. However, no significant effects were reported for income inequality at the district level, neither for different inequality measures nor for specific subgroups. These findings encourage future research to probe the causal mechanisms underlying the contextual dependencies of well-being, e.g., social trust, perceptions of the legitimacy of income inequalities, and social comparison processes.