ur Neighbor’s Income Affect Your Happiness?1Glenn Firebaugh and Matthew B. SchroederAdditional ARTICLE informationAbstractThe relative income or income status hypothesis implies that people should be happier when they live among the poor. Findings on NEIGHBORHOOD effects SUGGEST, however, that living in a poorer neighborhood reduces, not enhances, a person’s happiness. Using data from the American National Election Study linked to income data from the U.S. census, the authors find that Americans TEND to be happier when they reside in richer neighborhoods (consistent with neighborhood studies) in poorer counties (as predicted by the relative income hypothesis). Thus it appears that individuals in fact are happier when they live among the poor, as long as the poor do not live too close.This study investigates whether the happiness of Americans is affected by the income of those living nearby. If one’s status relative to one’s neighbors is what matters (e.g., Veblen 1899), then Americans should be happier living among the poor (other things equal), as a few recent studies have found (e.g., Luttmer 2005). Those studies are based, however, on “neighborhoods” that range in size from spatial units averaging about 150,000 residents (Luttmer 2005) to entire U.S. states (Blanchflower and Oswald 2004). In this research we use much smaller geographic units because we want to investigate the effect of the incomes of nearby neighbors on happiness.In the case of nearby neighbors, there are opposing types of relative status to take into account: neighborhood income compared to own income and neighborhood income compared to average income in the more general region. The first implies lower relative status when a person lives in a high-income neighborhood, whereas the second implies higher status when a person lives in a high-income neighborhood. Moreover, neighborhood amenities, such as well-maintained housing units and safe streets, covary with neighborhood income in the United States. Even though someone personally has lower relative status in a richer neighborhood, those Veblen status effects might be submerged by the effects of the greater prestige and better amenities associated with a richer neighborhood.2We do not know which effects prevail because no one has examined the effect of local neighborhood income on happiness, net of the effects of own income and regional income.3 That is the aim of this study.We set the stage by describing the Easterlin paradox, a notable feature of many Western societies that has kindled substantial scholarly interest in income status or relative income effects on happiness (Clark, Frijters, and Shields 2008). Before we examine that paradox, though, it is USEFUL to consider why sociologists might be interested in the study of happiness in the first place, since happiness generally has not been a major concern in the discipline.