Community, comparisons and subjective well-being in a divided society

Abstract

Using South African data, the paper poses six questions about the determinants of subjective well-being. Much of the paper is concerned with the role of relative concepts. We find that comparator income, when measured as the average income of others in the local residential cluster, enters the household's utility function positively (close neighbors are ‘positives’, not ‘negatives’), but that the income of more distant others enters negatively. Race-based comparator groups are also important in racially divided South Africa. Relative income is more important to happiness at higher levels of absolute income. Potential explanations and implications of these results are considered.

Introduction

In this paper we pose several questions about the determinants of subjective well-being. We do so for South Africa, a country that, because of its unusually divided society, provides a good case study of the effects of community and comparisons on subjective well-being. Each of these questions is new for South Africa. More broadly, the major contribution of the paper to the economic literature on subjective well-being concerns the role of comparisons made with others in the community. What are the reference groups against which people compare themselves, and do their comparisons give rise to fellow feeling or to feelings of relative deprivation? We highlight the roles that space and race can play. Spatially defined reference groups are shown to have a positive effect on subjective well-being, suggesting that neighbors may be ‘positives’ and not ‘negatives’. By contrast, racially defined reference groups are shown to have a negative effect, implying that relative deprivation may be experienced in relation to others of one's own race rather than to neighbors or to the larger society. There are interesting implications for welfare economics and for policy.

In Section 2, we provide a framework of concepts and literature about the effects of comparisons on subjective well-being. Section 3 describes the South African context and the data, and outlines the method: the estimation of subjective well-being functions that include explanatory variables representing relevant comparisons. The empirical Section 4 presents the results, question by question. In particular, we test whether and how spatial and racial comparisons affect subjective well-being. Section 5 concludes and draws out the implications of the analysis.