An Analysis Of Income Comparison On Subjective Well-being: Evidence From Pakistan

In the past decade, subjective well-being (SWB) has become an important item on the agenda of governments and measures of subjective well-being are often used to assess the costs and benefits of policies. Most governments and international organizations regard SWB as the most comprehensive measure of wealth, replacing traditional measures like Gross Domestic Product and some social indicators. Using cross sectional data from wave-6 (2010-2014) of the World Values Survey (WVS) for Pakistan, I examine the impact of comparison income on individual subjective well-being or happiness. I use ordered probit model to analyze the importance of the income of peer group on individual happiness. In this thesis, I test various hypotheses:the importance of the individual’s own income on happiness, the significance of the income of the peer group and of the distance between the individual income and the income of the peer group. The analysis uses a self-reported measure of life satisfaction as a measure of individual well-being. The WVS data do not contain actual income and income distribution data. I use average monthly household income from household integrated economic survey 2011-12 (HIES) as a proxy for family income. The study concludes that there is a positive and statistically significant relationship between income and happiness. Meanwhile, the average income of the peer group has a negative and statistically significant effect on individual happiness; individuals are happier if the income difference relative to the average peer group income is larger. In this thesis, education has a positive effect on SWB. Having middle to college level education has significant positive effect on happiness. Being self-employed and having part time job also have significant positive effect on SWB. Women are unhappy as compared to men and divorce has significant negative effect on life satisfaction. Results of this thesis suggest that to uplift the well-being of Pakistan, greater emphasis should be put on providing primary education, spending more on education, and raising incomes that would lift more poor families out of poverty and enhance their well-being.