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The Easterlin Paradox

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  • Easterlin, Richard A.
  • O’Connor, Kelsey J.

Abstract

The Easterlin Paradox states that at a point in time happiness varies directly with income, both among and within nations, but over time the long-term growth rates of happiness and income are not significantly related. The principal reason for the contradiction is social comparison. At a point in time those with higher income are happier because they are comparing their income to that of others who are less fortunate, and conversely for those with lower income. Over time, however, as incomes rise throughout the population, the incomes of one's comparison group rise along with one's own income and vitiates the otherwise positive effect of own-income growth on happiness. Critics of the Paradox mistakenly present the positive relation of happiness to income in cross-section data or in short-term time fluctuations as contradicting the nil relation of long-term trends.

Suggested Citation

  • Easterlin, Richard A. & O’Connor, Kelsey J., 2020. "The Easterlin Paradox," GLO Discussion Paper Series 743, Global Labor Organization (GLO).
  • Handle: RePEc:zbw:glodps:743
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    References listed on IDEAS

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    10. Edsel Beja, 2014. "Income growth and happiness: reassessment of the Easterlin Paradox," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(4), pages 329-346, December.
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    13. Mikucka, Malgorzata & Sarracino, Francesco & Dubrow, Joshua K., 2017. "When Does Economic Growth Improve Life Satisfaction? Multilevel Analysis of the Roles of Social Trust and Income Inequality in 46 Countries, 1981–2012," World Development, Elsevier, vol. 93(C), pages 447-459.
    14. Sarracino, Francesco & O'Connor, Kelsey J. & Ono, Hiroshi, 2019. "Making economic growth and well-being compatible: evidence from Japan," MPRA Paper 93010, University Library of Munich, Germany.
    15. Fengyu Wu, 2020. "An Examination of the Effects of Consumption Expenditures on Life Satisfaction in Australia," Journal of Happiness Studies, Springer, vol. 21(8), pages 2735-2771, December.
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    4. Kaiser, Caspar, 2022. "Using memories to assess the intrapersonal comparability of wellbeing reports," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 410-442.
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    8. Braganza, Oliver, 2022. "Market paternalism: Do people really want to be nudged towards consumption?," ifso working paper series 23, University of Duisburg-Essen, Institute for Socio-Economics (ifso).
    9. Luo, Jianbo, 2021. "Happiness adaptation to high income: Evidence from German panel data," Economics Letters, Elsevier, vol. 206(C).

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    More about this item

    Keywords

    Easterlin Paradox; economic growth; income; happiness; life satisfaction; subjective well-being; long-term; short-term; trends; fluctuations; transition countries; less developed countries; developed countries;
    All these keywords.

    JEL classification:

    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • D60 - Microeconomics - - Welfare Economics - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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