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Income Inequality Hurts Life Ratings Worldwide
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Income Inequality Hurts Life Ratings Worldwide

by Jan-Emmanuel De Neve and Nattavudh (Nick) Powdthavee

This guest opinion piece uses Gallup World Poll data as part of the authors' discussion paper.

The persistent rise in the share of income that the top 1% in many countries hold may be hurting the reported life ratings of the other 99%, with concerning implications for public health and national productivity, new research shows. A 1% increase in the share of taxable income held by the top 1% hurts life satisfaction as much as a 1.4% increase in the country-level unemployment rate.

These findings are published in a working paper, Top Incomes and Human Well-Being Around the World, by Richard V. Burkhauser (Cornell University), Jan-Emmanuel De Neve (Saïd Business School, University of Oxford) and Nattavudh Powdthavee (London School of Economics).

Some theories suggest that, overall, inequality can be a good thing: Individuals see others accumulate wealth and are motivated to do the same. While this may happen to a certain extent in some transitional or emerging economies, research shows that, worldwide, income inequality at the top makes us all less happy with our lives, even if we're relatively well-off.

Using data from the Gallup World Poll and the World Top Incomes Database, the researchers plotted the share of taxable income held by the top 1% in each country over time against reported life ratings and positive and negative emotional experiences across populations.

They found:

  • A pronounced negative correlation between individuals' "life evaluations" and the share of income held by people in the top percentile.
  • No relationship between positive emotional experiences and inequality at the very top of the income distribution. This is likely because, as Nobel laureates Daniel Kahneman and Angus Deaton found in their 2010 study, measures of life satisfaction were sensitive to socio-economic factors such as a person's income level and employment status. Alternatively, measures of positive and negative emotions were more sensitive to how people spend their time, such as socializing with or caring for others.
  • A significant positive relationship between top income shares and negative emotional experiences. In societies where the richest hold most of the country's income, people were more likely to report feeling "stressed," "worried" or "angry" on the day before the Gallup survey.

The authors started their research by asking if income inequality at the very top really matters to the average person's life evaluation -- and the results show that it does. Other studies have demonstrated the strong links between unhappiness and low productivity, the increase in sick leave and stress. Policymakers may need to pay more attention to the wider consequences of the rising share of income the top 1% enjoy.

Jan-Emmanuel De Neve is Associate Professor in Economics and Strategy at Saïd Business School and a Fellow of Harris Manchester College at the University of Oxford.
Nattavudh (Nick) Powdthavee holds a joint position as a Professorial Research Fellow at the Melbourne Institute of Applied Economics and Social Research, University of Melbourne, and a Principal Research Fellow at the Centre for Economic Performance at the London School of Economics.

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