Questions: Relative Rewards, Income Inequality, and Aspiration Spirals

Question 1

A country experiences a decade of strong economic growth, but the gains are concentrated at the top — the wealthiest quintile sees income triple while median incomes rise modestly. According to aspiration spiral theory, what outcome would this most likely produce?

• A. Increased social satisfaction, since absolute living standards have improved for everyone
• B. Increased social unrest, since aspirations rise faster than attainment as people compare upward to the wealthy
• C. Stable satisfaction, since people evaluate their wellbeing against their own past income, not others'
• D. Decreased unrest, since visible wealth creation gives people hope for future improvement

Answer: (B)

The aspiration spiral explains why growth with rising inequality can produce more unrest, not less. When the top pulls away dramatically, people's reference points shift upward — they see what is possible for others 'like them' and recalibrate what they deserve. Even as absolute conditions improve modestly, the gap between aspiration and attainment widens. This dynamic — material improvement combined with growing relative deprivation — is precisely the condition aspiration spiral theory identifies as producing frustration and instability.

Question 2

Two societies have identical average incomes. Society A has low income inequality; Society B has high income inequality. Research on subjective wellbeing would predict:

• A. Higher average life satisfaction in Society A, because income rank within the peer group matters more than absolute income
• B. Higher average life satisfaction in Society B, because visible inequality signals opportunity and mobility
• C. Equal satisfaction in both, since average income is the same
• D. The comparison is meaningless without controlling for each society's cultural values

Answer: (A)

Research consistently finds that income rank within a reference group matters more for life satisfaction than absolute income level. In the high-inequality society, most people rank relatively lower compared to those around them — even with the same average income. The 'keeping up with the Joneses' effect is not just about envy; it reflects people using their reference group to evaluate what they deserve and what is possible. Equal-income societies tend to produce higher average wellbeing because relative positions are less disparate.

Question 3

A person's rank within their peer group's income distribution matters more for their life satisfaction than their absolute income level.

• T. True
• F. False

Answer: True

This is one of the most robust findings in the subjective wellbeing literature. Two workers earning identical wages can experience very different satisfaction depending on what their colleagues and social contacts appear to earn. This is not mere irrationality — people use reference group income to calibrate what someone in their position can reasonably expect and deserve. Absolute income captures material capacity; relative rank captures social meaning and perceived fairness.

Question 4

When absolute living standards improve for most members of a society, people's subjective wellbeing improves proportionally, regardless of how the income gains are distributed.

• T. True
• F. False

Answer: False

The aspiration treadmill means that as income rises, aspirations rise with it — often faster, especially when inequality is increasing. If the top pulls away while median incomes grow modestly, the reference point shifts upward and the gap between what people have and what they feel entitled to widens. The result is that absolute improvement can coexist with declining subjective wellbeing. Rising tides lift absolute boats but not necessarily relative ones, and relative position is what drives satisfaction.

Question 5

Explain how the aspiration treadmill makes it possible for economic growth to increase rather than decrease social unrest.

Model answer: The aspiration treadmill describes how aspirations rise alongside income — people benchmark themselves against their current reference group, not their past selves. When growth is unequal, the reference group (especially the top) pulls further ahead, widening the gap between what people have and what they believe they should have. Even if absolute conditions improve, the perceived deprivation grows. This creates a paradox: societies in periods of growth with rising inequality sometimes generate more collective frustration and political instability than stagnant but more equal societies.

This insight is crucial for policy. Aggregate growth statistics can obscure the distributional dynamics that determine whether people feel better off. A society that doubles median income while tripling top incomes may produce more social tension than one that grows more slowly but equitably — because satisfaction tracks relative position within a peer group, not absolute living standards against a historical baseline.