This post continues my ruminations about the effect that beliefs about income inequality may have on the happiness of people who hold those beliefs. Previous posts can be found here.
In order to study this it would be nice to have a natural experiment in which the population of a country began with fairly positive beliefs about inequality and then changed those beliefs radically over a couple of years. In order to draw conclusions we would need survey information to document the change in beliefs that occurred, together with information on happiness levels, income inequality and per capita income levels.
It just so happens that such information is available for Poland. A study by Irena Grosfeld and Claudia Senik shows that a change in attitudes toward inequality, which occurred around 1997, was associated with a sharp decline in satisfaction with the current economic situation and some decline in satisfaction with personal living standards despite continued economic growth (‘The emerging aversion to inequality: evidence from Poland 1992-2005’, Discussion Paper 3484, IZA, 2008, here).
Around 1997 there was a sharp drop in the proportion of people agreeing with the statement that inequalities of income are necessary for economic progress and a rise in the proportion agreeing that inequalities of income are too large in Poland.
The statistical analysis actually suggests that income inequality (as measured by the Gini coefficient) had a positive effect on satisfaction with the economic situation and satisfaction with personal living standards in the period from 1992 to 1996. The authors argue that inequality was initially interpreted as “an opening of new opportunities” following the fall of communism. It is somewhat easier to understand how this might occur in the light of the results of other research by Claudia Senik (discussed here) which suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals tends to rise, rather than fall, when the income of their reference group -people with the same skills and occupation - increases. Her explanation is that in these countries people consider that their own future prospects to be better when the income of their professional peers rises.
Why did the change in attitudes toward inequality occur? Grosfeld and Senik suggest that “the turning point in tolerance for income inequality seems to come with the increasingly wide perception that the process that generates income distribution is itself unfair” (p17).
That suggests to me that a change occurred from a situation where the economic system was commonly viewed as a positive-sum game – potentially providing benefits to all participants - to one in which it was viewed as a zero-sum game – where the enrichment of some was perceived as being at the expense of others. Interestingly, the perception of an economy as a zero sum game can be an accurate perception when the distribution of income is influenced to a large extent by political favouritism.
All this leads me to wonder whether there is any survey evidence that people who perceive life as a positive sum game are generally happier that those who view it as a zero-sum game.