Research on relative deprivation has found that if you ask people who they compare themselves with, they usually say it is people like themselves – such as neighbours, friends or relations. People sometimes suggest that income inequality must work through social comparisons, through people feeling out-done by neighbours who perhaps have a better car or bigger house. If so, it ought to have its most powerful effects when people getting very different incomes live close to each other and encounter each other face to face.

This kind of reasoning led some researchers to compare inequality and health measured in small areas. But a review of nearly 170 studies found that ones where inequality was measured in small areas were least likely to find a relationship between inequality and health. The explanation is of course that small deprived neighbourhoods do not have poor health because of the inequality within them. They have bad health because they are deprived in relation to the wider society; and to capture that, inequality must be measured across society as a whole.  It is when inequality is measured across whole societies that it is most consistently related to outcomes such as health and homicide.

The explanation seems to be that what matters most is the scale of social differentiation across the whole society. Social hierarchy is usually regarded as a national pyramid with small numbers of the rich at the top and the bulk of the population further down. Rather than thinking of the effects of income distribution and of social class as separate influences on health and social functioning, it is more accurate to think of income inequality as providing the framework round which social class differentiation takes place.  Wider income differences lead to bigger social distances, more marked differentiation in terms of housing, cars, clothing and all the cultural markers of status, and so a more divided society. In two books Robert Frank has shown how much people use income to express social status – see Frank RH. Luxury Fever: Why money fails to satisfy in an era of success. Free Press, N.Y. 1999; Frank RH. Falling Behind: How Rising Inequality Harms the Middle Class. University of California Press, Berkeley. 2007