Subjective Well-Being: Keeping up with the Joneses. Real or Perceived?

Using data from the U.S. General Social Survey, we study the role of income and status in self-reported happiness. Unexpected income gains increase happiness and relative income is more important than absolute income, in particular, income relative to individuals’ own cohort working in the same occupation in the same region. Perceptions about relative income are more important than actual relative income in explaining individual well-being and perceptions about one’s own social class is more important than the actual social class in explaining happiness. Father’s social standing and occupational prestige during childhood decrease current well-being. The results are robust to instrumenting own income with sector level wages or compensation. JEL Classification: D14, D63, I31,