The price of hope: Reference-group mobility and the subjective value of income

Abstract

We examine whether upward mobility within a person’s reference group changes the subjective value of own and reference income. Standard relative-income models interpret higher peer income mainly as status loss. We argue that this view is incomplete. In mobile reference groups, higher peer income may also signal attainable opportunities, consistent with a “tunnel effect”; at the same time, mobility can raise aspirations and reduce satisfaction with one’s own income, creating what we call the “price of hope”. Using the Socio-Economic Panel (SOEP) for 2000–2020, we combine individual fixed effects with leave-one-out reference income and leave-one-out reference-group-year measures of realised upward income dynamics. Among individuals below their reference income, the negative association between reference income and life satisfaction is strong in low-mobility environments but largely attenuated when mobility is high. The own-income gradient is also smaller in high-mobility environments. These patterns are weaker among individuals at or above their reference income and robust across alternative mobility measures, reference-group definitions, median reference income, and controls for within-group inequality. Mobility, therefore, changes the meaning of income: it makes richer peers less costly as a status benchmark, but lowers the subjective return to current own income by shifting aspirations upward.