Abstract
The growing literature on happiness economics suggests that, together with absolute income, individual well-being is affected by relative income both horizontally (i.e. because of differences between an individual’s income and that of others to whom she compares) and vertically (i.e. compared to changes in individuals’ own income). Moreover, the way in which individuals value their relative situation and the distribution of income will determine how inequality affects individual well-being. This paper aims to examine the relationship between these variables in the case of China, focusing mainly on how income inequality affects subjective well-being. Using data from the CGSS, the results suggest that both absolute and relative income affect subject well-being, and that an inverted-U shaped relationship between income inequality and individual well-being appears at least for urban residents, whereas this relationship tend to be negative in the case of people living in rural areas.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
National Bureau of Statistics of China (NBS): https://data.stats.gov.cn/english/easyquery.htm?cn=C01.
The World Happiness Report is an annual publication of the United Nations containing rankings of national happiness based on individuals’ ratings of their own lives. https://worldhappiness.report/ed/2019/.
The World Inequality Report 2018 shows that income inequality has notably increased in China since 1980, with its transition from communism to a capitalist economy. Furthermore, despite the general downward trend observed in the last decade, China's Gini coefficient remains higher than 0.4, which is considered to be the emergency threshold. https://wir2018.wid.world/.
The literature on well-being bases on individuals’ self-reported data about life satisfaction, happiness or subjective well-being. Although these terms are often used indistinctly (Ferrer-i-Carbonell, 2005; Deaton, 2008), there are significant differences among these constructs, some of them connoting emotion or mood whereas other refer to a broad evaluation of life. For a comparison of different measures of subjective well-being used in China, see Hsu et al. (2017).
Other explanations that are commonly suggested in the literature refer to externalities that may go with higher levels of income, such as a worsening of social capital which could have a negative impact on individuals’ well-being (for the case of China, see for example Bartolini and Sarracino 2015).
The economic analysis of interdependent preferences or relative income is already found in Duesenberry (1949), or more recently in Pollak (1976) or Frank (1985).
This interpretation is in line with the Set-Point theory in the psychological literature, which suggests that individuals tend to relatively stable levels of happiness (‘hedonic treadmill’). See Diener et al. (2009) for a critical review of the psychological literature on adaptation and reference levels.
Ordered probit regressions have also been run and the results are similar to those obtained with OLS regressions both in the sign and significance of the coefficients, which is in line with the conclusions of Ferrer‐i-Carbonell and Frijters (2004). These estimates are not presented in the paper due to space limitations but are available upon request.
Chinese General Social Survey: https://cgss.ruc.edu.cn/index.php?r=index/index&hl=en.
Since 2003, the CGSS has used three different sampling designs and three sets of sampling frames: 2003–2006, 2008 and 2010–present. See details in: https://cgss.ruc.edu.cn/index.php?r=index/sample.
Much of the studies on subjective well-being at the international level use data from the World Values Survey (WVS), which comes from interviews with almost 400,000 respondents from different countries. However, the last available data (WVS, round 2010–2014) only contains 2300 individuals from China, resulting in a relatively small sample. World Values Survey: https://www.worldvaluessurvey.org/wvs.jsp.
The use of a 5-point Likert scale for the life satisfaction variable is common in the happiness literature, as is the case of works based on the Chinese General Social Survey (CGSS). Other surveys, such as the World Values Survey, use a 10-points scale (from 1 to 10) or a 11-point scale (from 0 to 10), such as the Gallup poll data used in the World Happiness reports. For a comparison of data on different representative samples implemented in China see Li and Raine (2014).
When analyzing the responses about subjective well-being for different subsamples, no statistically significant differences were found between men and women. However, the T-test results indicate that there are statistically significant differences between urban and rural residents, being the average subjective well-being of urban residents significantly higher than that of the rural ones.
Besides the annual household income, the CGSS also provides the resident population of the household, so the per capita income of the household can be directly obtained.
Gini coefficients can also be calculated at the provincial or county level, but the coverage is too large at the provincial level, so resulting in less Gini indices, whereas it is too narrow and contains insufficient size samples at the county level.
Hukou is a household registration system in China that was formally created in 1958. According to this registration system, all Chinese citizens hold either an agricultural or non-agricultural Hukou in a particular location (rural or urban), and residents with different type of Hukou have different access to government-provided social programs, such as pensions, education, and health care, with greater benefits associated to non-agricultural Hukou. Since the 1990s, the Hukou system has known significant reforms and has evolved towards a weakening of the rural–urban division, although the distance between the area of residence and the type of Hukou is still significant. Also, restrictions on internal migration within China have been gradually removed, but most rural migrant workers still maintain their agricultural Hukou status (these people with an agricultural Hukou but living in urban areas are usually known as 'migrant workers '). For a detailed description of the Hukou system and its impact on the China’s economy, see Song (2014).
See Dolan et al. (2008) for a comprehensive review on the determinants of wellbeing. In the case of China, see Appleton and Song (2008), Han (2015), or Asadullah et al. (2018).
Due to space limitations, only those estimates for which the interactions variables show a significant effect on well-being are presented. Complete estimates are available upon request.
References
Alesina, A., Di Tella, R., & MacCulloch, R. (2004). Inequality and happiness: Are Europeans and Americans different? Journal of Public Economics, 88(9–10), 2009–2042.
Appleton, S., & Song, L. (2008). Life satisfaction in urban China: Components and determinants. World Development, 36, 2325–2340.
Asadullah, M. N., Xiao, S., & Yeoh, E. (2018). Subjective well-being in China, 2005–2010: The role of relative income, gender, and location. China Economic Review, 48, 83–101.
Bartolini, S., & Sarracino, F. (2015). The dark side of Chinese growth: Declining social capital and well-being in times of economic boom. World Development, 74, 333–351.
Brockmann, H., Delhey, J., Welzel, C., & Yuan, H. (2009). The China puzzle: Falling happiness in a rising economy. Journal of Happiness Studies, 10(4), 387–405.
Clark, A. E. (2003). Inequality-aversion and income mobility: A direct test. DELTA working paper, 2003-11.
Clark, A. E., Frijters, P., & Shields, M. A. (2008). Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.
Clark, A. E., & Oswald, A. J. (1996). Satisfaction and comparison income. Journal of Public Economics, 61, 359–381.
Deaton, A. (2008). Income, health, and well-being around the world: Evidence from the Gallup World Poll. Journal of Economic Perspectives, 22, 53–72.
Diener, E., Lucas, R. E., & Scollon, C. N. (2009). Beyond the hedonic treadmill: Revising the adaptation theory of well-being. In E. Diener (Ed.), The science of well-being. Social indicators research series (Vol. 37). Dordrecht: Springer.
Diener, E. D., & Diener, C. (1995). The wealth of nations revisited: Income and quality of life. Social Indicators Research, 36, 275–286.
Dolan, P., Peasgood, T., & White, M. (2008). Do we really know what makes us happy: A review of the economic literature on the factors associated with subjective well-being. Journal of Economic Psychology, 29, 94–122.
Duesenberry, J. S. (1949). Income, saving and the theory of consumer behavior. Cambridge, MA: Harvard University Press.
Easterlin, R. (1974). Does economic growth improve the human lot? In P. A. David & M. W. Reder (Eds.), Nations and households in economic growth: Essays in honor of moses abramovitz. New York: Academic Press.
Easterlin, R. (1995). Will raising the incomes of all increase happiness of all? Journal of Economic Behavior and Organization, 27, 35–47.
Easterlin, R., Morgan, R., Switek, M., & Wang, F. (2012). China’s life satisfaction, 1990–2010. PNAS Proceedings of the National Academy of Sciences of the United States of America, 109(25), 9775–9780.
Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. The Quarterly Journal of Economics, 114(3), 817–868.
Ferrer-i-Carbonell, A. (2005). Income and well-being: An empirical analysis of the comparison income effect. Journal of Public Economics, 89, 997–1019.
Ferrer-i-Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of happiness? The Economic Journal, 114(497), 641–659.
Frank, R. H. (1985). Choosing the right pond. Oxford: Oxford University Press.
Frey, B. S., & Stutzer, A. (2002). What can economists learn from happiness research? Journal of Economic Literature, 40(2), 402–435.
Graham, C., & Felton, A. (2006). Inequality and happiness: Insights from Latin America. The Journal of Economic Inequality, 4(1), 107–122.
Graham, C., & Pettinato, S. (2002). Frustrated achievers: Winners, losers and subjective well-being in new market economies. Journal of Development Studies, 38, 100–140.
Han, C. (2015). Explaining the subjective well-being of urban and rural Chinese: Income, personal concerns, and societal evaluations. Social Science Research, 49, 179–190.
Hirschman, A. O., & Rothschild, M. (1973). The changing tolerance for income inequality in the course of economic development with a mathematical appendix. The Quarterly Journal of Economics, 87, 544–566.
Hsu, B., Zhang, W., & Kim, C. (2017). Surveying happiness in China: Comparing measures of subjective well-being. The Journal of Chinese Sociology, 4, 14.
Jiang, S., Lu, M., & Sato, H. (2012). Identity, inequality, and happiness: Evidence from urban China. World Development, 40(6), 1190–1200.
Knight, J., Song, L., & Gunatilaka, R. (2009). Subjective well-being and its determinants in rural China. China Economic Review, 20(4), 635–649.
Li, J., & Raine, J. W. (2014). The time trend of life satisfaction in China. Social Indicators Research, 116(2), 409–427.
Pollak, R. A. (1976). Interdependent preferences. American Economic Review, 66, 309–320.
Song, Y. (2014). What should economist know about the current Chinese hukou system? China Economic Review, 29, 200–212.
Wang, P., Pan, J., & Luo, Z. (2015). The impact of income inequality on individual happiness: Evidence from China. Social Indicators Research, 121, 413–435.
Wu, X. G., & Li, J. (2013). Economic growth, income inequality and subjective well-being: Evidence from China. Population Studies Center Research Report 13-796.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Ding, J., Salinas-Jiménez, J. & Salinas-Jiménez, M.d. The Impact of Income Inequality on Subjective Well-Being: The Case of China. J Happiness Stud 22, 845–866 (2021). https://doi.org/10.1007/s10902-020-00254-4
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10902-020-00254-4