Income rank matters for well-being, but social capital can buffer its effects

People at the bottom of the income distribution consistently report worse mental health and lower life satisfaction. But why?

One explanation is material deprivation: people suffer because they lack resources. Another is relative deprivation: well-being falls when others earn much more. A third explanation is social rank: what matters is simply how many people earn more than you, regardless of how large the income gaps are.

These explanations are often treated as interchangeable; however, they are not. If well-being suffers because of material deprivation, then growth and redistribution should substantially improve population happiness. If large income gaps are the problem, compressing the top of the distribution should help. But if what matters is rank, simply how many people earn more than you, the issue is structurally different.

Rank is zero-sum (whatever is gained by one side is lost by the other); it is inherently comparative. Even in an equal society, someone must occupy the lower half. In that case, raising aggregate income or compressing top incomes cannot eliminate low rank itself, because hierarchies persist in any distribution. Thus, these explanations imply very different psychological processes and very different policy responses.

How we conducted the research

To distinguish between these explanations, Professor JanEmmanuel De Neve (Saïd Business School, University of Oxford), Professor Gordon Brown (Department of Psychology, University of Warwick) and I created a unified statistical model capable of directly comparing all three explanations - absolute income, relative deprivation and income rank - within a single analytical framework.

Drawing on more than a decade of Gallup World Poll data (a large-scale, nationally representative survey conducted annually in over 160 countries measuring people's lives, well-being, and experiences), we created a model to directly compare the competing theories rather than infer them indirectly.

Crucially, we also examined the context in which these dynamics operate, exploring when and where the effect is amplified or attenuated.

At the national level, we analysed economic conditions, such as unemployment and GDP, cultural values such as materialism and individualism, and measures of social capital including civic engagement, community involvement and institutional trust.

At the individual level, we also considered demographic characteristics and psychological traits such as risk tolerance and altruism.

Together, these variables map the social, cultural, economic and psychological conditions that either amplify or buffer the impact of income rank, helping to identify where and for whom interventions might be most effective.

What we found

Across roughly 80% of countries, a simple rank-based model, in which each higher earner counts equally regardless of how much richer they are, explains well-being better than models based on income gaps. More complex deprivation models do not improve explanatory power. The evidence, therefore, points strongly toward social status as the primary channel through which income influences well-being. What matters is not how far behind you are in monetary terms, but how many people are ahead of you.

The strength of the rank effect depends heavily on social context. In countries with high levels of civic engagement and institutional trust, the association is around 80% weaker than in countries with low civic engagement. In more materialistic cultures, by contrast, the relationship is more than three times stronger.

Similar patterns appear at the individual level: people with stronger community ties and greater trust in institutions are less affected by low-income rank.

This suggests that where societies provide alternative sources of recognition, identity and belonging, through civic participation, community roles and trusted institutions, income position becomes less psychologically consequential.

What this means for policy and society

Governments routinely track GDP, employment and health indicators. Far fewer systematically measure how satisfied people are with their lives. Yet if well-being is intrinsically valuable, and not merely a by-product of economic performance, then understanding its determinants becomes a core task of policy.

From that perspective, the study carries an important implication. If low-income rank reduces well-being and rank itself cannot be eliminated through economic growth alone, then improving population well-being requires more than raising incomes or compressing top earnings. Strengthening civic life, community participation, and institutional trust may be just as important.

By expanding non-economic pathways to status and recognition, societies can reduce the psychological burden of being lower in the income hierarchy, even when economic hierarchies themselves persist.