NCPA - National Center for Policy Analysis

Study: Money Can Buy Happiness

May 6, 2013

For the past few decades, research has shown that after a person's basic needs are met, higher income is not associated with a higher state of subjective wellbeing. However, a new study has found contrasting results. In fact, the data show that the relationship between wellbeing and income rises linearly as income rises, says Betsey Stevenson and Justin Wolfers of the Brooking Institution.

  • Richard Easterlin claimed in 1974 that increasing average income did not raise average wellbeing.
  • The claim, known as the Easterlin Paradox, was supported in the years following by an array of studies supporting the claim.
  • Recent studies have pointed to a robust positive relationship between wellbeing and income across countries and over time.

Others claim that the positive relationship exists for those who are lower on the income scale but after basic needs have been met, greater income does not raise wellbeing. Despite the ubiquity of this claim, no formal statistical evidence supports this view.

  • Some researchers have found that there are only small increases in wellbeing above some threshold, while other researchers claim that happiness ceases to increase with greater economic prosperity.
  • The estimates differ, but the income level at which greater income does not yield greater wellbeing is said to be somewhere between $8,000 and $25,000.
  • Many researchers claim that once gross domestic product reaches a certain per capita rate, happiness is independent.

Despite graph after graph depicting increasing income yielding diminishing marginal gains in subjective wellbeing, Stevenson and Wolfers have found just the opposite.

  • After analyzing multiple datasets, the new research shows that there is no satiation point, which means that each additional dollar of income does yield more happiness.
  • The results are consistent when the data is varied by time, subjective is wellbeing is measured in various ways and income has various thresholds.
  • The measures are also consistent across countries and when comparing the rich and poor people within different countries.

Source: Betsey Stevenson and Justin Wolfers, "Subjective Wellbeing and Income: Is There Any Evidence of Satiation?" Brookings Institution, April 2013.


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