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Resolution of the Happiness–Income Paradox

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  • Y. Ma
  • Ye Zhang

Abstract

It is widely believed that happiness is strongly correlated with wealth and income, but according to the happiness–income paradox, this is not always true. The paradox predicates that there is a strong positive correlation between income and happiness nationally, but the correlation is essentially absent in international comparisons, or in a long-term longitudinal comparison. This paradox has been widely debated among economists and the controversy has persisted for several decades. In this article, the happiness–income paradox is explained in terms of ecological correlation due to spatial aggregation or data-grouping, change of reference classes, and confounding variables. The controversy is resolved when ecological correlations and third-variable effects are accounted for. At the individual level, happiness and income are correlated positively, but not as strongly as many believe. In international comparisons, happiness and income are, in general, quite strongly correlated as well, contrary to what Easterlin (Nations and households in economic growth: essays in honor of Moses Abramovitz, Academic Press, New York, 1974 ) claimed and similar to what others have found, but for different reasons. Long-term comparison is also related to ecological correlation, but it is related to the change of reference classes as well. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Y. Ma & Ye Zhang, 2014. "Resolution of the Happiness–Income Paradox," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 119(2), pages 705-721, November.
    • Handle: RePEc:spr:soinre:v:119:y:2014:i:2:p:705-721
    DOI: 10.1007/s11205-013-0502-9
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    References listed on IDEAS

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    1. 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.
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    8. Di Tella, Rafael & MacCulloch, Robert, 2008. "Gross national happiness as an answer to the Easterlin Paradox?," Journal of Development Economics, Elsevier, vol. 86(1), pages 22-42, April.
    9. Christian Welzel & Ronald Inglehart, 2010. "Agency, Values, and Well-Being: A Human Development Model," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 97(1), pages 43-63, May.
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    Cited by:

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    2. Paul Fenton Villar, 2022. "Is there a Mineral-Induced ‘Economic Euphoria’?: Evidence from Latin America," Journal of Happiness Studies, Springer, vol. 23(4), pages 1403-1430, April.
    3. Huiyu Zhang & Ying Dai & Huimei Liu, 2021. "English Proficiency and Happiness: The Mediation of Income Satisfaction and Leisure Satisfaction and the Moderation of the National Economy," SAGE Open, , vol. 11(4), pages 21582440211, October.
    4. Y. Ma, 2015. "Simpson’s paradox in GDP and per capita GDP growths," Empirical Economics, Springer, vol. 49(4), pages 1301-1315, December.

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