Does income equality make us happier?

I've been interested in the central claims of The Spirit Level for quite a while now.  And for those who have been in a bunker since 2009, its authors - the epidemiologists Richard Wilkinson and Kate Pickett - argue that the level of income inequality in a society determines a wide range of health and social problems.  Reducing income inequality, then, is a proposed cure for a whole batch of social ills.

I think in general The Spirit Level has increased the standard of debate around inequality.  No longer do we think of inequality in crass economic terms: will a bit more inequality make everyone a little bit richer?  Now we think about the social costs of inequality.  And part of this is how inequality makes us feel.

One of the key arguments of the pro-equality lobby is that high levels of inequality make us feel bad.  We might feel an injustice that others get so much more than us.  We might feel uncomfortable in places where people are different to us.  We might feel shame that we can't afford what others so easily can.

Turning this on its head, the opposite should also be true.  We should feel better when other people - especially those around us - are similar to us.  The world should appear more just, we should feel more comfortable and less ashamed of our social status.  But to what extent is this true?  Does higher equality make us happier?

Fortunately, data from the (now defunct) Citizenship Survey allow us to explore this further.  There is an interesting question from 2010 that asks people whether their friends earn a similar amount to them:

Subsequently, we can split people's answers into two categories: a) people who have friends who all have similar incomes to them (1) and b) people who don't (2-4).  In practice, 27% of the survey's respondents fall into category (a): what we might call the 'equal' group.  When we examine these groups against their average level of life satisfaction, we can see if there are any systematic differences.

In the Citizenship Survey, life satisfaction (once reversed) is measured on a scale of 1 - 5: where 1 equals 'very dissatisfied' and 5 equals 'very satisfied'.  The average score for the whole sample in the survey (11,063 people) is 4.1.  So where do the 'equal' and 'unequal' groups fit in?

As it turns out, the 'equal' group - those people whose friends have similar incomes to them - have an average life satisfaction score of 4.2.  The 'unequal' group - those who tend to have friends with different incomes to them (whether higher or lower) - have an average score of 4.1.

This is a relatively small difference, but it could be an important one.  And when we look at relationships like this we want to know whether such a difference is due to other factors.  It could turn out, for example, that having friends with similar incomes is correlated with other things we know increase life satisfaction: religion, where you live, age or having children.  So the next step is to assess the effect of equality on life satisfaction using multiple regression techniques that control for a whole range of variables that we also think are important for happiness.  In my model, this includes labour market status, education level, age, gender, region, income, religion and ethnicity.

Once we've done this, the results still suggest that having a strong level of equality within your group of friends is linked to a higher level of life satisfaction.  The effect is not huge (but it is statistically significant).  It is about a third of the size of the effect that marriage has on life satisfaction and a quarter of the size that having a job has.  If you want to be happy then, perhaps the old adage is true.

And don't make friends with bankers.