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

  • Stevenson, Betsey


  • Wolfers, Justin


    (University of Michigan)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3654.

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Length: 80 pages
Date of creation: Aug 2008
Date of revision:
Publication status: published in: Brookings Papers on Economic Activity, 2008, 1, 1-87
Handle: RePEc:iza:izadps:dp3654
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  1. 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.
  2. Leigh, Andrew & Wolfers, Justin, 2006. "Happiness and the Human Development Index: Australia is NOT a Paradox," CEPR Discussion Papers 5476, C.E.P.R. Discussion Papers.
  3. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  4. 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.
  5. Wolfers, Justin, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-Being," Research Papers 1751r, Stanford University, Graduate School of Business.
  6. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
  7. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  8. John Y. Campbell & N. Gregory Mankiw, 1987. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  9. 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).
  10. Betsey Stevenson & Justin Wolfers, 2009. "The Paradox of Declining Female Happiness," NBER Working Papers 14969, National Bureau of Economic Research, Inc.
  11. repec:pri:cheawb:deaton_income_health_and_wellbeing_around_the_world_evidence_%20from_gallup_world_poll_jep_spring2008 is not listed on IDEAS
  12. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  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. 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.
  15. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  16. Kenny, Charles, 1999. "Does Growth Cause Happiness, or Does Happiness Cause Growth?," Kyklos, Wiley Blackwell, vol. 52(1), pages 3-25.
  17. 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.
  18. 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.
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