Unpublished research similar to mine I am a PhD student and I wrote a paper in the social sciences. The contribution of my paper is that it's the first non-North American analysis on the subject. 

There is a working paper I found online from a doctoral student in another university, whose research is semi-similar to mine, and who looks outside of North America. 

I am submitting my paper to an academic Journal. I have not cited the other students paper. It's been two years since they uploaded the working paper, and there is no sign of it published anywhere, and no update on the students (now a post doc) own research website. I tried to contact the author to ask if they intend to publish, I got no response.

I did not reference their paper in my research, because I don't think it's right that I should forfeit my contribution for an incomplete paper that doesn't seem to be heading to a journal and undergo peer review. 

I am seeking opinions/guidance as to whether I am right. My supervisor has provided no guidance, and I can't find information on the internet.
You need to cite the paper only if you use it or depend on it in your research in some way. However, if you have a section on "Similar Research" then you should probably mention it there. You don't forfeit anything if your work was independent. For purposes of your degree, your supervisor will decide if you have made a proper contribution. For purposes of publishing, the editors and reviewers will decide on priority. Just because you don't cite it doesn't mean that it isn't known. 

Independent research on a topic goes on constantly in the real world. 

The worst case for you is that if you don't cite it and someone thinks you have plagiarized. But the real world situation is as it is. You can't change that.