The Easterlin Paradox at 50

We use Gallup World Poll data from over 150 countries from 2009-2019 at both the individual and country levels to revisit the relationship between income and subjective wellbeing. Our inspiration is the paradox first proposed by Easterlin (1974), where higher incomes are associated with greater happiness in cross-sections, yet rising country GDP per head does not necessarily increase its average wellbeing. In our analysis subjective wellbeing (or happiness) is measured by the Cantril ladder on a 0-10 scale. Across individuals, other things equal, one unit of log income raises subjective wellbeing by 0.4 points. In other words, doubling income raises wellbeing by 0.3 points out of 10. Across countries, a crude regression of wellbeing on log per capita income gives a higher coefficient of 0.6. But, once social variables like health and social support are introduced, the picture changes. In rich countries, income no longer has a significant independent effect, either in country cross-sections or in time series. For low-income countries the result is also clear cut – income raises happiness in both cross-section and time series, whether the social variables are controlled for or not. For middle-income countries the result is mixed.