Inequality of opportunity and life satisfaction

Abstract

This article attempts to shed light on the contrasting findings about the effect of inequality on subjective wellbeing by decomposing income inequality into inequality of opportunity (due to factors that individuals cannot control) and inequality of effort. The two inequality components, calculated using EU-SILC data at regional and wave level, are matched with individual data on life satisfaction and its controls from the European Social Survey. We find that inequality of opportunity affects negatively and significantly subjective wellbeing, while inequality due to effort does not play a negative role. The negative effect of inequality of opportunity is stronger for women, the young, and the less educated. Our findings support the hypothesis that individuals are generally hit by that component of inequality (inequality of opportunity) that they perceive as unfair and beyond their control.