Executive summary
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An emerging area of subjective well-being (SWB) research is centered on the differences in the levels of SWB both across countries and among geographic regions within a country. The consideration of geographic differences would extend our knowledge about the determinants of SWB from "internal" factors of personality traits and individuals' socio-demographic characteristics to "external factors" embedded in individuals' environments. An issue with important theoretical and policy implications is whether the income of others in the same geographic area is associated with individuals' SWB. The association could be positive if people benefit from the improved resources, amenities, and social capital in high-income areas. The association could also be negative if people tend to emulate the lifestyles of their more affluent neighbours. Related empirical studies so far have not come to a consensus on this question.
The present study attempts to contribute to this issue in two significant ways. First, this study examines whether the effect of the average income in a geographic area (locality income) on SWB is sensitive to the scale of geographic units. With a very large sample of survey respondents nested within three hierarchical levels of geographic areas, this study provides reliable estimates of the association of SWB with average incomes in immediate neighbourhoods (defined as "census dissemination areas"), local communities ("census tracts"), and municipalities ("census subdivisions"). Second, this study examines how the choice of control variables influences the estimated effect of locality income. By considering the effects of individual demographic and socioeconomic characteristics, self-evaluated general health, and area-level attributes in a sequential manner, it is possible to discuss the likely mechanisms through which locality income is related to individuals' SWB.
This study draws nationally representative survey data from two sources: (1) the 2008-to-2011 General Social Survey (GSS); and (2) the 2009-to-2011 Canadian Community Health Survey (CCHS). These surveys provide the life satisfaction measure and other individual-level variables. The 2006 Canadian Census of Population 20% sample microdata file is used to derive locality income and other area-level attributes. The area-level data are merged with individual-level data using common geographic identifiers. The study sample contains 142,780 respondents, nested within 31,024 immediate neighbourhoods, 5,002 local communities, and 430 municipalities.
This study finds that the association between life satisfaction and the average income of others living in the same geographic area is sensitive to the scale of geographic areas, to area-level attributes associated with income, and to the inclusion of self-reported health as a control variable. When the fixed effects of higher geographic units (as a proxy for unmeasured area-level attributes) and self-reported health are not controlled for, both neighbourhood and community incomes are positively and significantly associated with life satisfaction even after taking into account geographic differences in individuals' demographic and socio-economic characteristics, while municipality income is negatively and significantly associated with life satisfaction. When geographic fixed effects are controlled for, the positive association of neighbourhood and community incomes with life satisfaction remains, but the negative effect of municipality income disappears. When self-reported health is further controlled for, none of the effects of neighbourhood, community, and municipality incomes are significant.
These results suggest that locality income has no negative net effect on life satisfaction. Its net effect is more likely to be positive because controlling for self-reported health may over-correct the association of locality income with life satisfaction. The results should not be taken to mean that people do not make social comparisons with their neighbours. However, it is clear that, if negative consumption externalities of neighbours' incomes do exist, their effect is certainly not strong enough to offset the spillovers of high-income neighbours.
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