Stories | February 20, 2018

Happy with your salary? Why more money might not be the key

How your pay compares to other people's income may be more important.

Imagine you could live in one of two worlds where the price of goods and services were the same. In the first world, you earn £50,000 a year, while other people get £25,000.

In the second, you earn £100,000, while others get £200,000. Which would you choose? 

If it’s the first world, you’re not alone. Researchers at Harvard University found that half of people did not favour what was effectively a doubling in salary if it meant they would end up earning less than those around them. And it’s not the only study to find that the size of our pay packet can often matter less than how it compares to that of our friends and colleagues.

Friend envy
Psychologists at the University of Warwick measured the wellbeing of 80,000 people, and found that where a person’s income ranked against their peers predicted their general satisfaction with life. The higher they ranked, the happier they were. 

Their actual income didn’t matter. “Earning a million pounds a year appears to be not enough to make you happy if you know your friends all earn two million a year,” said lead researcher Chris Boyce.

The findings could explain why people in rich nations have not become any happier on average over the last 40 years despite a substantial increase in average incomes, the research team said.And Facebook, Twitter and Instagram may be adding fuel to the disillusionment fire, a study by Sapienza University of Rome and the government statistics service of Luxembourg, STATEC, suggests.

Idealised existence
It found that online networking was strongly linked to income dissatisfaction, while those who met up frequently with friends face to face tended to be more content with their lot. It could be because pals meeting up in person would be less likely to brag and make others in the group feel inadequate, whereas online, people behave differently.

Facebook newsfeeds provide “an onslaught of idealised existences” – engagement rings, new jobs, luxury holidays – from not just friends, but former friends and distant acquaintances, the researchers said.

“Online social networks not only offer more frequent opportunities for comparison, but they also offer more opportunities for upward comparisons, i.e. towards those who look better off,” they said. “This is due, in particular, to the prevalently positive nature of information that people choose to display on Facebook.

“Our results suggest that the social comparisons occurring in online social networks may cause frustration and dissatisfaction with income and material possessions, thereby lowering self-regard."

That self-comparison can trigger negativity is one reason the sharing of salary information with colleagues is taboo in many places. Indeed, some companies have rules forbidding employees telling others what they earn written into their contracts, to prevent resentment brewing.

But as Ray Fisman, a professor in behavioural economics at Boston University, notes, the old “asocial” view held by economists would posit that the pay of others is irrelevant because it doesn’t change what we ourselves can buy with our cash. “According to this perspective, finding out that your salary is lower than your peers should, if anything, make you happier with your job, since it probably means your future earnings have nowhere to go but up,” he writes in Slate.

However, economists “now acknowledge that we constantly judge our own accomplishments in comparison to others, and salaries serve as one ready benchmark,” he said.

Slowing down
As soon as we step out of the rat race, though, the effects of relative income fall away, it seems.

Dr Umat Boodoo, now at Warwick Business School, and his team measured the life satisfaction of people aged 45 and over – some of whom were still working and some who had retired. While relative income mattered more to the happiness levels of the workers, for the retirees – who no longer encountered the “daily and tangible income and status comparisons” at work – absolute income tended to be more important.

The study found a gender difference too. While the working men and women were both affected by relative income levels, the effect was much stronger for men. They were much more unhappy if they earned less than their reference group, and much more happy if they made more.

But if you’re still stuck in the 9-5 and you’ve just found out your colleagues are earning considerably more than you, what should you do?

Asking your manager to spell out exactly how the company decided your salary might help. Pay-data firm Payscale found that the majority of workers believe they are being underpaid, even if they are paid above the market rate. The lack of transparency in many organisations may be to blame, they suggest.

eZonomics team
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