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Based on earlier, mainly aggregate analyses, conventional wisdom previously held that income inequality reduces happiness. But aggregate models consistently yield misleading results in this domain, substantially because of intractable problems of sample size, confounding omitted variables, and conditional effects differing between poor developing nations, rich advanced nations, and nations in transition from Communism. Based on more recent evidence, scholarly views are beginning to merge on a consensus that national income inequality is irrelevant to individuals' subjective well-being in advanced nations and normal times, as shown by multi-level models with appropriate controls (including socioeconomic development, an engine of happiness and foe of inequality). For developing nations, consensus is not as strong, but the bulk of the evidence indicates a neutral to positive effect for inequality. Building on this foundation, this paper provides exploratory analyses to stimulate future research, extending our understanding of the social psychological and cultural forces that generate these results; dissects changes over time and expectations for the future; and addresses the possibility that inequality may reduce well-being in extraordinary circumstances and for particular groups – for example creating differences in formerly Communist nations between the political left and the right, and between older and younger cohorts. [ABSTRACT FROM AUTHOR]

Income inequality has been contentious for millennia, a source of political conflict for centuries, and is now widely feared as a pernicious “side effect” of economic progress. But equality is only a means to an end and so must be evaluated by its consequences. The fundamental question is: What effect does a country's level of income inequality have on its citizens' quality of life, their subjective well-being? We show that in developing nations inequality is certainly not harmful but probably beneficial, increasing well-being by about 8 points out of 100. This may well be Kuznets's inverted “U”: In the earliest stages of development some are able to move out of the (poorly paying) subsistence economy into the (better paying) modern economy; their higher pay increases their well-being while simultaneously increasing inequality. In advanced nations, income inequality on average neither helps nor harms. Estimates are from random-intercept fixed-effects multi-level models, confirmed by over four dozen sensitivity tests. Data are from the pooled World Values/European Values Surveys, Waves 1 to 5 with 169 representative national samples in 68 nations, 1981 to 2009, and over 200,000 respondents, replicated and extended in the European Quality of Life Surveys. [ABSTRACT FROM AUTHOR]

In formulating views of just reward for high-status and low-status work, do ordinary citizens take cues from their nation's public stance on income inequality as institutionally embedded in their welfare state, i.e. their social welfare and labor market policies, their "welfarism"? How large a morally correct earnings gap flows from that? Our multilevel analyses (fixed effects, random intercepts) replicate prior research on the impact of individual characteristics and socioeconomic development. They open new territory with the discovery that public opinion on legitimate/just earnings of high-status occupations aligns moderately strongly with welfarism, ceteris paribus , with welfare state citizens advocating lower pay for the elite but not higher pay for working-class occupations: The welfare state is not (or no longer) a matter of helping the poor but instead of bringing down the elite, "cutting down the tall poppies". Data: World Inequality Study v2.1: 30 countries, 71 surveys, and over 88,000 individuals. [ABSTRACT FROM AUTHOR]