Social scientists have for long acknowledged that people evaluate their own wellbeing not only on the basis of what they have but also on the basis of what they have relatively to what other people have. Adam Smith (1776) wrote that "By necessaries I understand not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without".1 And Marx (1847) wrote that "A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut”.2
Despite the old age of these ideas, it is only during the second half of the twentieth century that scholars have tried to provide more analytical substance to the concept of relative deprivation. Duesemberry (1949)3 proposed a relative income hypothesis based on the idea that people determine their savings behavior not on their absolute incomes but on their relative position on the income scale. Runciman (1966)4 built an entire theory of social justice around the concept of relative deprivation defined as the sense of frustration that people experience when they observe other people having something they desire and within their reach but unattainable. While popular, these new theories struggled to become mainstream and it is only recently and thanks to studies on happiness that the concepts of relative deprivation have acquired new life.
The concept of relative deprivation refers not just to the comparisons across people but also to the comparisons across time. People compare themselves with others in society but also with their own past status and their own future expectations. Today’s happiness or life satisfaction also depends on whether we perceive progress in our own status and whether we see good prospects for the future. If group A is experiencing growth in incomes and group B is not, group A is more likely to be happy than group B even if absolute income is lower. Progress, as well as status, matters for happiness.
If we put together these two aspects of relative deprivation, the comparisons across people and the comparisons across the self, we can depict a simple scheme to understand how relative deprivation operates. The scheme below shows the Alter system to represent comparisons with others and the Ego system to represent comparisons with one’s own self in the past and in the future. The intersection of these two systems is what generates today’s satisfaction. It is our own perception at the present time of our relative position in society and of our progress from the past and prospects for the future.
Source: Verme (2012) Happiness, Deprivation and the Alter Ego, in The Measurement of Individual Well-being and Group Inequalities: Essays in Memory of Z. M. Berrebi, Deutsch, J. and Silber, J. (Eds.), Routledge, November 2010.
Feelings of relative deprivation should also be understood in the context of absolute deprivation. The scheme depicted should be thought as mobile, with upwards shifts representing improvements in welfare and downwards shifts representing declines in welfare for an entire society. When a society is doing better because GDP is growing and because this growth is equally benefitting everyone in society, mean income and welfare are moving upwards. This may not affect my position in society (everyone moves up by the same degree and my relative position does not change) but affects the comparison of my present status with my past status: I feel better because I’m doing better. Hence, absolute gains affect relative gains, at least in the Self comparison system and, if we really wish to measure the importance of relative deprivation in explaining happiness and satisfaction we need to take absolute deprivation into account.
This is what the literature on relative income and relative deprivation has tried to do during the past thirty years. And the results largely confirm that relative deprivation matters, especially when we take absolute deprivation into account. According to a recent survey of the empirical literature,5 most of the studies that use the concepts of relative income in conjunction with absolute income find that the degree of satisfaction decreases if relative income increases. If my income stays the same and the incomes of others improve, the satisfaction I derive from my own income will deteriorate. Moreover, the relative deprivation factor gains in strength as people and societies become richer to an extent that, for very rich societies, happiness should be mostly understood in terms of relative gains rather than absolute gains. Easterlin (1974),6 for example, noticed how the increase in GDP per capita in the United States during the post-war period has not been accompanied by a rise in average happiness, a phenomenon known as the “Easterlin paradox”.
One possible application of these ideas is in the context of revolutions. Revolutions may be interpreted as a social reaction to two factors: a sharp degree of perceived inequality and injustice across various dimensions and social groups and the fact that rulers make it very difficult for the masses to change the status quo. Not surprisingly, the word inequality featured prominently in the 1789 French Revolution, the 1917 Russian revolution and the 2011 Egyptian revolution. But in the populace jargon, inequality is not used to express a technical fact related to distances between incomes but to express the feeling of injustice generated by perceived differences between the haves and the haves not, between the past and the present and between expectations and realizations. This is what relative deprivation really captures, what makes people feel that they are being cheated by their rulers and what generates the anger that fuels revolutions.
1Smith, Adam (1776). “An Inquiry into the Nature and Causes of the Wealth of Nations”, London
2Marx, K., (1847) “Wage Labour and Capital”, http://www.marxists.org/archive/marx/works/1847/wage-labour/ch06.htm 
3Duesenberry, J.S., (1949) “Income, Saving and the Theory of Consumer Behavior”. Harvard University Press, Cambridge, MA.
4Runciman, W. G. (1966) “Relative Deprivation and Social Justice”, Routledge and Kegan Paul, London.
5Verme (2013) “The Relative Income and Relative Deprivation Hypotheses: A Review of the Empirical Literature .” World Bank Policy research Working Papers, No. 6606.
6Easterlin, R. A. (1974) “Does economic growth improve the human lot?" in Nations and households in economic growth: Essays in honour of Moses Abramovitz, ed. by P. A. David, and M. W. Reder. New York Academic Press.