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Income and happiness: Evidence, explanations and economic implications

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Author Info
Andrew E. Clark
Paul Frijters
Michael A. Shields

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Abstract

There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.

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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2006-24.

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Date of creation: 2006
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Handle: RePEc:pse:psecon:2006-24

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  1. Dario Sciulli & Antonio Gomes de Menezes & José Cabral Vieira, 2008. "Dual Labour Markets and Matching Frictions," CEIS Research Paper 119, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
  2. Andrew E. Clark, 2006. "A Note on Unhappiness and Unemployment Duration," IZA Discussion Papers 2406, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Irena Grosfeld & Claudia Senik, 2008. "The Emerging Aversion to Inequality: Evidence from Poland 1992-2005," William Davidson Institute Working Papers Series wp919, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
    Other versions:
  4. John Beath & Felix FitzRoy, 2006. "Status, Hapiness and Relative Income," Discussion Paper Series, Department of Economics 0604, Department of Economics, University of St. Andrews. [Downloadable!]
  5. Oswald, Andrew J. & Powdthavee, Nattavudh, 2007. "Death, Happiness, and the Calculation of Compensatory Damages," The Warwick Economics Research Paper Series (TWERPS) 827, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  6. Richard A. Easterlin & Onnicha Sawangfa, 2007. "Happiness and Domain Satisfaction: Theory and Evidence," IZA Discussion Papers 2584, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Irena Grosfeld & Claudia Senik, 2008. "The emerging aversion to inequality - Evidence from long subjective data," PSE Working Papers 2008-19, PSE (Ecole normale supérieure), revised Jul 2008. [Downloadable!]
    Other versions:
  8. Richard A. Easterlin & Anke C. Zimmermann, 2006. "Life Satisfaction and Economic Outcomes in Germany Pre- and Post-Unification," IZA Discussion Papers 2494, Institute for the Study of Labor (IZA). [Downloadable!]
  9. Andrew E. Clark & Ed Diener & Yannis Georgellis & Richard E. Lucas, 2006. "Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis," IZA Discussion Papers 2526, Institute for the Study of Labor (IZA). [Downloadable!]
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  10. Easterlin, Richard A., 2008. "Lost in Transition: Life Satisfaction on the Road to Capitalism," IZA Discussion Papers 3409, Institute for the Study of Labor (IZA). [Downloadable!]
  11. Guglielmo Maria Caporale & Yannis Georgellis & Nicholas Tsitsianis & Ya Ping Yin, 2007. "Income and Happiness across Europe: Do Reference Values Matter?," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  12. Pérez Truglia, Ricardo Nicolás, 2007. "Can a rise in income inequality improve welfare?," MPRA Paper 4700, University Library of Munich, Germany, revised 22 Dec 2007. [Downloadable!]
  13. Leonardo Becchetti & Alessandra Pelloni & Fiammetta Rossetti, 2008. "Relational Goods, Sociability, and happiness," CEIS Research Paper 117, Tor Vergata University, CEIS, revised 14 Jul 2008. [Downloadable!]
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  14. Richard Layard & Guy Mayraz & Stephen Nickell, 2007. "The Marginal Utility of Income," CEP Discussion Papers dp0784, Centre for Economic Performance, LSE. [Downloadable!]
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  15. Andrew E. Clark & Claudia Senik, 2007. "La croissance rend-elle heureux ? La réponse des données subjectives," PSE Working Papers 2007-06, PSE (Ecole normale supérieure). [Downloadable!]
  16. Bernard M.S. van Praag, 2007. "Perspectives from the Happiness Literature and the Role of New Instruments for Policy Analysis," Tinbergen Institute Discussion Papers 07-049/3, Tinbergen Institute. [Downloadable!]
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  17. John Beath & Felix FitzRoy, 2007. "Status, Happiness, and Relative Income," IZA Discussion Papers 2658, Institute for the Study of Labor (IZA). [Downloadable!]
  18. Aronsson, Thomas, 2007. "When the Joneses’ Consumption Hurts: Optimal Income Taxation and Public Good Provision in an OLG Model," UmeÃ¥ Economic Studies 711, Umeå University, Department of Economics. [Downloadable!]
  19. Richard A. Easterlin & Anke Zimmermann, 2006. "Life Satisfaction and Economic Outcomes in Germany Pre- and Post-Unification," IEPR Working Papers 06.58, Institute of Economic Policy Research (IEPR). [Downloadable!]
  20. Andrew E. Clark, 2006. "Born to be mild? Cohort effects don't explain why well-being is U-shaped in age," PSE Working Papers 2006-35, PSE (Ecole normale supérieure). [Downloadable!]
  21. Simone Borghesi & Alessandro Vercelli, 2007. "Happiness and health: two paradoxes," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0108, Department of Economic Policy, Finance and Development (DEPFID), University of Siena. [Downloadable!]
  22. Holger Bonin & Ulf Rinne, 2006. "Beautiful Serbia," IZA Discussion Papers 2533, Institute for the Study of Labor (IZA). [Downloadable!]
  23. Claudia Senik, 2007. "Income Comparisons. Which Income Gaps Matter Most to People?," PSE Working Papers 2007-19, PSE (Ecole normale supérieure). [Downloadable!]
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