NCPA - National Center for Policy Analysis

EVIDENTLY, MONEY DOES BUY HAPPINESS

September 18, 2008

Economic growth has long been considered an important goal of economic policy, yet in recent years some have begun to argue against raising the material standard of living, claiming that it will do little to raise well-being.  These arguments are based on the "Easterlin paradox," which suggests that there is no link between a society's economic development and its average level of happiness, says the National Bureau of Economic Research (NBER).

The NBER re-assessed this paradox by examining the relationship between the happiness of rich and poor members within a country and comparing the happiness of countries at different points in time as they get richer or poorer.

Researchers found that:

  • There is a clear positive link between average levels of subjective well-being and gross domestic product (GDP) per capita across countries.
  • There is no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being.
  • The key finding is that the relationship between subjective well-being and income within countries is similar to that seen between countries.
  • Finally, examining the relationship between changes in subjective well-being and income over time within countries they found that economic growth is associated with rising happiness.

Together these findings indicate a clear role for absolute income and a more limited role for relative income comparisons in determining happiness, says NBER.

Source: Betsey Stevenson and Justin Wolfers, "Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox," National Bureau of Economic Research, Working Paper, No. 14282, August 2008.

For text:

http://papers.nber.org/papers/w14282

 

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