This article shows that people's perception of their position in society is strongly correlated with their level of happiness, and thus that differences in happiness levels among countries in different welfare state clusters are influenced by people's perceptions of their relative position in society (subjective position). The study drew on data from the European Social Survey. Two important findings emerged from the analysis. First, an individual's subjective position in society is a more important predictor of happiness than objective measures such as income, education and labour market position. Second, the link between individuals’ perceived position in society and their level of happiness is moderated by the welfare state. In the Nordic countries, people's perceptions of their position in society have less influence on happiness whereas in Eastern European countries we found a strong connection between subjective position and happiness.