How can I tell if an item is better?

Solution 1:

The item drops are indeed compared to your upgraded stats. Unfortunately, this makes it so if you're carrying an upgraded gun, only the stuff that's better than the upgraded version will show up as green. This makes it so you have to run around and manually check stuff, which can be quite tedious.

Solution 2:

You have to manually check each item if you want an upgrade, as the game uses the current value of your upgraded gear to the "current" (level 1) of the dropped gear.

Worse, you can get green thumbs up on items that are quite inferior to your gear. Not all enchantments are of equal value, but the game considers that they are. Worse, it seems to not take into account that an item with major minuses isn't as good as an item of lower point enchantments but no major minuses on it.