‘Pay discrepancy only viewed as negative by older workers’

Being paid less than our peers has a negative effect on our happiness when we are 45 and older – but when we are under 45, it has a positive effect, according to new research.

Being paid less than our peers has a negative effect on our happiness when we are 45 and older – but when we are under 45, it has a positive effect, according to new research.

The study by Dr Max Steinhardt and colleagues, to be presented at the Royal Economic  Society’s 2012 annual conference this week, looks at how comparing incomes affects our happiness and suggests that when we are young, we see the higher incomes of our peers as an  opportunity to earn these higher incomes ourselves. But when we are  over 45, we see those higher incomes as a missed opportunity.

The positive effect when young is particularly strong for men, whereas the negative effect when older and still in work is particularly strong for women. But retired women are no longer interested in comparison, so peer income does not affect their happiness at all.  This suggests that men and women may view opportunities in life  differently, say the researchers

The study analyses a comprehensive household survey in Germany, which covers income, employment status, personal life and a measure of self-assessed life satisfaction for nearly 10,000 people. The research 
focuses on the incomes of people who are of similar age, are the same  gender and have a similar level of education.

The researchers argue that life satisfaction may depend on not just a comparison of current incomes, but also on how a person’s life as a  whole is going compared with their peers. Early in their working lives, people do not know for sure how their lives might pan out and how their incomes will change.

To gauge how well they are doing, people will use both their own income and those of their peers to predict how things might go in the future. For this reason, a higher income for their peers may suggest  that there are opportunities for their income to rise as well, thus  making them happier – something the authors call a ‘so far, so good’ mentality.

It is only in later life when this optimism fades that having a lower income relative to our peers starts to have a negative effect on our  happiness.

The researchers argue that with ageing populations and shrinking  proportions of young people, the negative effect of relative income on  happiness is likely to create an unhappier society, particularly as  income inequality shows little sign of narrowing.

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