Why is greater income inequality associated with lower life satisfaction and poorer health? Evidence from the European Quality of Life Survey, 2012

Background. Across countries and states, greater income inequality is associated with lower wellbeing. There are multiple causal pathways that could produce such an association. If the relationship of individual income to wellbeing is downward concave, greater dispersion of the income distribution must reduce average wellbeing. More unequal countries may also provide their residents with worse public services and amenities. Finally, increasing inequality may have direct psychosocial effects by heightening competitiveness and social anxiety. Objectives. Using data from the European Quality of Life Survey 2012, we evaluated the contributions of different causal pathways to associations between income inequality and (a) life satisfaction and (b) self-rated health. Methods. Secondary analysis of 27,571 respondents from 28 countries. Results. In unadjusted analyses, greater income inequality was associated with lower life satisfaction and poorer self-rated health. Of the association between inequality and life satisfaction, 43% was attributable to individual income effects, and 41% to worse public services (especially access to healthcare), leaving 16% possibly due to direct psychosocial effects. The association between income inequality and self-rated health was mainly (68%) due to individual income effects, with the remainder possibly attributable to psychosocial effects. For life satisfaction, we found some evidence of costs of inequality that fall on those with high incomes, though this was not the case for self-rated health. Conclusion. The negative associations between income inequality and wellbeing across European countries are in substantial part due to individual income effects. For life satisfaction, a further portion is attributable to worse public services. For life satisfaction but not self-rated health, income inequality has some negative consequences for those on high incomes as well as low incomes.