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Happiness Adaptation to Income beyond "Basic Needs"

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  • Rafael Di Tella
  • Robert MacCulloch

Abstract

We test for whether, once "basic needs" are satisfied, there is happiness adaptation to further gains in income using three data sets. Individual German Panel Data from 1985-2000, and data on the well-being of over 600,000 people in a panel of European countries from 1975-2002, shows different patterns of adaptation to income across the rich and poor. We find evidence that for wealthy Germans, and for the rich half of European nations, higher levels of per capita income don't buy greater happiness. The reason appears to be adaptation. However even for the rich half of European nations such habituation may take over 5 years so the happiness gains that they experience, whilst not permanent, can still be relatively long-lasting. Finally we study a cross section of nations in 2005 from the World Gallup Poll and find that the past 45 years of economic growth (from 1960-2005) in the rich half of nations has not brought happiness gains above those that were already in place once the 1960s standard of living had been achieved. However in the poorest half of nations we cannot reject the null hypothesis that the happiness gains they have experienced from the past 45 years of growth have been the same as the gains that they experienced from growth prior to the 1960s.

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  • Rafael Di Tella & Robert MacCulloch, 2008. "Happiness Adaptation to Income beyond "Basic Needs"," NBER Working Papers 14539, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14539
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    Cited by:

    1. Duha T. Altindag & Junyue Xu, 2009. "The Impact of Institutions and Development on Happiness," Departmental Working Papers 2009-17, Department of Economics, Louisiana State University.
    2. Luz Andrea Pineros López & Andrés Mauricio Clavijo Abril, 2014. "Subjective poverty, multidimensional poverty and food security in Colombia," Revista IB 12989, Departamento Administrativo Nacional de Estadística - DANE.
    3. Burhan, Nik Ahmad Sufian & Mohamad, Mohd Rosli & Kurniawan, Yohan & Sidek, Abdul Halim, 2014. "National Intelligence, Basic Human Needs, and Their Effect on Economic Growth," MPRA Paper 77267, University Library of Munich, Germany.
    4. Kang-Rae Ma, 2016. "Intergenerational Transmission of Wealth and Life Satisfaction," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 11(4), pages 1287-1308, December.
    5. BARTOLINI Stefano & SARRACINO Francesco, 2011. "Happy for How Long? How Social Capital and GDP relate to Happiness over Time," LISER Working Paper Series 2011-60, Luxembourg Institute of Socio-Economic Research (LISER).
    6. Ioana CIORBAGIU, 2021. "Influences and spatial effects on subjective well-being," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(626), S), pages 23-42, Spring.
    7. Betsey Stevenson & Justin Wolfers, 2013. "Subjective Well-Being and Income: Is There Any Evidence of Satiation?," American Economic Review, American Economic Association, vol. 103(3), pages 598-604, May.
    8. Dumbraveanu Andrada, 2015. "On The Trails Of The Gender “Life Satisfaction” Gap: A Mixed Level Analysis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 257-263, April.
    9. Gonzalo Salas & Andrea Vigorito, 2019. "Subjective Well-Being and Adaptation. The Case of Uruguay," Applied Research in Quality of Life, Springer;International Society for Quality-of-Life Studies, vol. 14(3), pages 685-703, July.
    10. Rojas, Mariano, 2009. "Economía de la felicidad. Hallazgos relevantes respecto al ingreso y el bienestar," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(303), pages 537-573, julio-sep.
    11. Johannes Klement, 2021. "Identifying Stabilising Effects on Survey Based Life Satisfaction Using Quasi-maximum Likelihood Estimation," Journal of Happiness Studies, Springer, vol. 22(8), pages 3611-3629, December.
    12. Pedersen, Peder J. & Schmidt, Torben Dall, 2011. "Happiness in Europe," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(5), pages 480-489.
    13. Worawan Chandoevwit & Kannika Thampanishvong, 2016. "Valuing Social Relationships and Improved Health Condition Among the Thai Population," Journal of Happiness Studies, Springer, vol. 17(5), pages 2167-2189, October.
    14. Pedersen, Peder J. & Schmidt, Torben Dall, 2009. "Happiness in Europe: Cross-Country Differences in the Determinants of Subjective Well-Being," IZA Discussion Papers 4538, Institute of Labor Economics (IZA).
    15. Zhang, Yinjunjie & Xu, Zhicheng Phil & Palma, Marco A., 2017. "Misclassification Errors of Subjective Well-being: A New Approach to Mapping Happiness," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258553, Agricultural and Applied Economics Association.
    16. Andos Juhász, 2012. "A Satisfaction-Driven Poverty Indicator: A Bustle around the Poverty Line," SOEPpapers on Multidisciplinary Panel Data Research 461, DIW Berlin, The German Socio-Economic Panel (SOEP).
    17. Hovi Matti & Laamanen Jani-Petri, 2017. "Adaptation and Loss Aversion in the Relationship between GDP and Subjective Well-being," Working Papers 1717, Tampere University, Faculty of Management and Business, Economics.
    18. Martin Binder & Felix Ward, 2011. "The Structure of Happiness: A Vector Autoregressive Approach," Papers on Economics and Evolution 2011-08, Philipps University Marburg, Department of Geography.

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    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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