The Rural-Urban Divide in China: Income but Not Happiness?

The paper presents subjective well-being functions for urban and rural China, based on a national household survey for 2002. Whereas the vast income disparity between urban and rural households is confirmed, it is found that, remarkably, rural households report higher subjective well-being than do their richer urban counterparts. A decomposition analysis explores the reasons for this reversal. It finds that there are many determinants of happiness other than absolute income, and that the determinants differ in the two sectors. An explanation for the puzzle is advanced in terms of relative concepts, income inequalities, orbits of comparison, and degrees of insecurity. Positive and normative implications are discussed.