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Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox

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  • Stevenson, Betsey
  • Wolfers, Justin

Abstract

The "Easterlin paradox" suggests that there is no link between a society’s economic development and its average level of happiness. We re-assess this paradox analyzing multiple rich datasets spanning many decades. Using recent data on a broader array of countries, we establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is consistent across many datasets and is similar to the relationship between subject well-being and income observed within countries. Finally, examining the relationship between changes in subjective well-being and income over time within countries we find economic growth 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.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6944.

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Date of creation: Aug 2008
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Handle: RePEc:cpr:ceprdp:6944

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Keywords: Easterlin Paradox; economic growth; happiness; hedonic treadmill; life satisfaction; quality of life; subjective well-being; well-being-income gradient;

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References

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  1. Andrew Leigh & Justin Wolfers, 2005. "Happiness and the Human Development Index: Australia is Not a Paradox," CEPR Discussion Papers 505, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
  3. Oswald, Andrew J., 2008. "On the Curvature of the Reporting Function from Objective Reality to Subjective Feelings," IZA Discussion Papers 3344, Institute for the Study of Labor (IZA).
  4. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  5. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 1999. "The macroeconomics of happiness," ZEI Working Papers B 03-1999, ZEI - Center for European Integration Studies, University of Bonn.
  6. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  7. Angus Deaton, 2008. "Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll," Journal of Economic Perspectives, American Economic Association, vol. 22(2), pages 53-72, Spring.
  8. Michael Eid & Ed Diener, 2004. "Global Judgments of Subjective Well-Being: Situational Variability and Long-Term Stability," Social Indicators Research, Springer, vol. 65(3), pages 245-277, February.
  9. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing," NBER Working Papers 9619, National Bureau of Economic Research, Inc.
  10. Stevenson, Betsey & Wolfers, Justin, 2009. "The Paradox of Declining Female Happiness," IZA Discussion Papers 4200, Institute for the Study of Labor (IZA).
  11. Daniel Kahneman & Alan B. Krueger, 2006. "Developments in the Measurement of Subjective Well-Being," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 3-24, Winter.
  12. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  13. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
  14. Campbell, John Y & Mankiw, N Gregory, 1990. "Permanent Income, Current Income, and Consumption," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(3), pages 265-79, July.
  15. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  16. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  17. Kenny, Charles, 1999. "Does Growth Cause Happiness, or Does Happiness Cause Growth?," Kyklos, Wiley Blackwell, vol. 52(1), pages 3-25.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Happiness, democracy & health
    by chris dillow in Stumbling and Mumbling on 2009-06-03 13:41:49
  2. Income makes happy after all
    by Economic Logician in Economic Logic on 2009-01-22 15:06:00
  3. Undergraduate Economics Journal Club
    by Liam Delaney in Geary Behaviour Centre on 2010-09-10 14:31:00
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