Is life satisfaction mainly about comfort?

‘Contrary to both those who say money is not associated with happiness and those who say that it is extremely important, we found that money is much more related to some forms of well-being than it is to others. Income is most strongly associated with the life evaluation form of well-being, which is a reflective judgment on people’s lives compared with what they want them to be. Although statistically significant, the association of income with positive and negative feelings was modest’ (Ed Diener, Weiting Ng, James Harta and Raksha Arora, ‘Wealth and happiness across the world ...’, Journal of Personality and Social Psychology, (99:1), 2010, p. 60. Media reports: here and here.)

In my view this recent article makes an important contribution to understanding of the relationship between wealth and emotional well-being by attempting to disentangle the determinants of life satisfaction and positive feelings. The article, based on data from the Gallup World Poll, suggests that while satisfaction with standard of living has a substantial impact on satisfaction with life as a whole it has little impact on positive or negative feelings (emotions experienced ‘yesterday’).

The study uses satisfaction with standard of living and a measure of whether people own luxury conveniences (TV, computers etc) as proxy measures of fulfillment of material desires. The basic idea is that people learn to desire material goods because of their social situation (including the influence of advertising) and the fulfillment of these desires leads to feelings of well-being. Some groups (e.g. the Amish) seem to be reasonably happy without much income because they have relatively low aspirations for material goods.

The authors link their findings to the distinction that Tibor Scitovsky made between comfort and pleasure (‘The Joyless Economy’, 1978). They suggest that ‘it may be that’ comforts increase life evaluations whereas pleasures increase reports of positive feelings:

‘Comfort comes from having one’s needs and desires continuously fulfilled, whereas pleasures come from fulfilling unmet needs and from stimulating and challenging activities. One source of pleasure according to Scitovsky is social stimulation, which he suggested lies largely outside the realm of economics. Novelty and learning can be sources of pleasure too. Thus, Scitovsky’s reasoning is in accord with our findings that wealth predicts life satisfaction, and social relationships and learning new things predict positive feelings’ p.59 .

I found that passage fairly challenging, but reading it didn’t give me positive feelings. I don’t have too many problems with the idea that being satisfied with your standard of living is closely related to comfort, but there are other factors related to economic activity - such as a sense of achievement - that may also make an important contribution to life satisfaction.

A couple of years ago I attempted to identify how necessary various domains of quality of life are to high satisfaction with life as a whole using data compiled by the Australian Centre on Quality of Life (reported here). The criterion used was the percentage of respondents with high satisfaction with life as a whole among those with low ratings on particular domains of quality of life. The percentages were follows (ranked in order of importance of each domain): personal relationships 10.8%, achieving in life 11.8%, standard of living 12.8%, future security 15.6%, health 15.9%, community connectedness 19.0% and safety 20.3%. The results suggest that ‘achieving in life’ at least as necessary to high life satisfaction for Australians as is ‘standard of living’.

I do not claim that working for money is the only way that people can obtain a strong sense of achievement, but it would be very surprising if this feeling is unrelated to economic activity.

Postscript:
I could also have mentioned the neurological evidence that humans (and rats and presumably other animals as well) get more satisfaction from actively working for a reward than from getting it without doing anything to earn it. (See: Gregory Burns, 'Satisfaction', 2005, pp. 43-45.)

Is economic growth causing the Chinese to become discontented or more optimistic?

In my last post I suggested that the reasons why rapid economic growth has not resulted in increased average life satisfaction in China over the last couple of decades have more to do with rising aspirations than with increased income inequality. In this post I want to consider those issues further.

My first point is that in recent years the Chinese have been about as satisfied with life as people in most other countries with comparable income levels. This shows up clearly in charts in Angus Deaton’s article, ‘Income, health and well-being around the world’ (“Journal of Economic Perspectives”, 22 (2)).

Second, survey evidence is not consistent with growing discontent caused by rising inequality - or by anything else. According to recent Gallup data about 66 percent of Chinese are satisfied with their standard of living and 83 percent say that their standard of living is getting better. A paper by Nicole Naurath show that in 2008 over 80 percent of Chinese claimed that economic conditions were getting better in the city or area where they live and that it was also getting better as a place to live.

Third, there is evidence that life satisfaction in China is more strongly influenced by satisfaction with income growth (i.e. satisfaction with income now compared with income in the past) than with either absolute or relative incomes. The results of a study by Lina Song and Simon Appleton do not support the view that dissatisfaction with relative income is a major cause of social discontent in China (“Life Satisfaction in Urban China”, IZA DP: 3443, 2008).

Fourth, Andrew Deaton found in his cross-country study, cited above, that while level of per capita income has a positive effect on life satisfaction, economic growth has a negative effect. His results suggest that it would be normal for the negative effect of economic growth to outweigh the positive effects of increases in income levels in countries that are experiencing rapid economic growth (see Table 2 in his article). Deaton argues that his results are consistent with life satisfaction responding to the long-term average income, as in a permanent income model of life satisfaction.

Fifth, the ratings that the Chinese give to the quality of their lives five years ago and five years into the future suggest that large upward revisions are occurring in their aspirations. The Gallup data for 2008 indicates that the Chinese rated their lives five years ago less highly than just about every country in the world outside Africa. The rating they give to their lives five years ahead is higher than that in some western European countries. When they appraise their current quality of life in five years time they will realize that they still have somewhat further to go before attaining “the best possible life”. But they are not likely to become discontented while they continue to experience the economic growth they have come to expect.

I think the lesson to be learned from consideration of the relationship between average life satisfaction and rising per capita incomes in China is that the failure of life satisfaction to rise with income does not necessarily imply discontent with the consequences of economic growth. Those who suggest that economic growth has led to widespread discontent in China are mistaken. Economic growth has merely cursed the Chinese with great expectations.

The Chinese are becoming wealthier, so why aren't they happier?

This is the question raised in a recent article in the Journal of Happiness Studies: “The China puzzle: falling happiness in a rising economy”, by Hilke Brockman, Jan Delhey, Christian Weizel and Hao Yuan (V10, 4, 2009).

The focus of the study is the decade from 1990 to 2000. Even though real per capita GDP in China was 2.8 times higher in 2000 than in 1990, the percentage of Chinese describing themselves as very happy declined from 28 percent to 12 percent and the average life satisfaction rating fell from 7.3 to 6.5 (on the WVS 10 point scale).

The authors consider three possible explanations: anomie (powerlessness), political disaffection (declining trust in government) and relative deprivation (frustration because increased income inequality resulted in a higher proportion of the population with below average incomes). Anomie is measured by survey data on the lack of a feeling of free choice and control over the way you live your life. Political disaffection is measured by survey data on lack of trust in the government and parliament. Survey data on financial dissatisfaction (dissatisfaction with the financial situation of your household) is used as a proxy for relative deprivation.

To cut a long story short, the authors conclude that relative deprivation provides the best explanation because the decline in life satisfaction is strongly associated with a decline in financial satisfaction. (A fuller summary of the article is available on Psyblog )

The main problem I have with this conclusion is that data presented in the article suggests that average life satisfaction of high income earners declined along with the life satisfaction of those on lower incomes. There was no reason for the high income earners to feel relative deprivation.

When I look closely at the data it seems to me that the main puzzle is not why average life satisfaction in China was lower in 2000 than in 1990, but why such a high proportion of Chinese were recorded as satisfied with life in 1990. This figure, 68 percent, was higher than in such high income countries as Austria, France, Germany and Japan.

When you look at average life satisfaction of people in different age groups (Fig. 1) older people seem to have been much happier than young people in 1990 and the situation has been partially reversed since then. A comparison of Figure 1 and Figure 2 shows similar patterns for life satisfaction and financial satisfaction. This suggests to me that the apparent decline in average life satisfaction between 1990 and 2000 might possibly be attributable to perceptions by older people that their financial security had declined for some reason e.g. concerns that as a result of social changes young people might be less likely to support them in their old age.

Even if we disregard the 1990 data, however, it is apparent from the Figures that we are still left with the problem of explaining why average life satisfaction and financial satisfaction has not increased since the mid 1990s. The decline in consumption as a percentage of GDP from about 50 percent around 1980 to about 32 percent in recent years cannot provide a complete explanation, because this has not prevented real per capita consumption from increasing substantially.

My guess is that the failure of average life satisfaction to rise in China is associated with a change in the benchmarks that people use to assess their current well-being. In 1990 many people in China may have been using past living standards as the benchmark in assessing their current satisfaction with life. Since then, however, their aspirations have probably risen as they have come to view the living standards enjoyed in high income countries as attainable in the foreseeable future. If I am right most Chinese people would probably agree that “they have never had it so good”, to borrow an unsuccessful political slogan. But those old enough to remember what life was like 30 years ago would probably rather forget about that.

Note: A follow-up post on this topic is here.

Is the quality of life in New Zealand over-rated?

Some New Zealanders might say that this is a question that only an Australian could ask, but it seems to me to be a good way to raise the issue that I want to discuss. (I hope that when I look back on this in a few days time it will still seem like a good idea!)

The ratings that I am writing about are the ladder of life ratings from the Gallup World Poll – the top step of the ladder represents the best possible life and the bottom step represents the worst possible life. But I could be referring to any of a range of surveys that ask people to place a numerical rating on how happy they are or on how satisfied they are with their lives.

I do not intend to argue that New Zealanders have a peculiar propensity to over-rate their satisfaction with their lives. The issue I want to discuss is what it means when surveys show that New Zealanders are just as satisfied with their lives as people in the U.S. even though average incomes in NZ are only about two-thirds of the U.S. level. I propose to compare the impact of income differences and other factors on the survey measures of subjective well-being in order to enable readers to consider whether the impacts attributable to income differences provide an accurate measure of its impact on the quality of lives.

It is now possible to make fairly accurate comparisons of the impact of income and other factors on average ratings of subjective well-being at a national level. Recent research by John Helliwell, Christopher Barrington-Leigh, Anthony Harris and Haifang Huang has shown that a high proportion of differences in average life evaluations between countries can be explained statistically by differences in a relatively small number of variables reflecting social, institutional and economic circumstances of life (See Table 3, ‘International Evidence on the Social Context of Well-being’, Working paper 14720, NBER, 2009). The most important variables are income (log of per capita GDP), friends (the proportion of survey participants who have relatives or friends they can count on for help when they are in trouble), freedom (the proportion who satisfied with their freedom to choose what they do with their lives) and corruption ( responses to questions relating to whether corruption is widespread throughout government and business).

In the Figure below I have used these research results to show reasons why average survey measures of subjective well-being in several countries differ from the U.S. ratings.



The net differences from U.S. ratings are shown next to the label for each country. If you focus on New Zealand you can see that the perception of NZers that their country is relatively free of corruption outweighs the negative impact on survey responses of the fact that average incomes in NZ are substantially lower than the U.S. average.

If you consider that corruption is as big a problem in the U.S as, for example, in Greece, you might think that this provides an accurate depiction of the relative impacts of income differences and corruption on the quality of life in New Zealand and the U.S. However, when I look at the expert ratings of corruption levels in Transparency International’s corruption index, the U.S. doesn’t look too bad. The rating of the U.S. in this index (7.3) is lower than Denmark and NZ (both on 9.3) and Australia (8.7) but well above Italy (4.8) and Greece (4.7). (It is also interesting that Greeks do not perceive that their corruption problem to be any worse than that in he U.S. and that NZers do not perceive themselves to be as free of corruption as the Danes).

The point is that the influence of various factors on the survey ratings of quality of life depends on the way they are perceived. The ratings are more like emotional responses than dispassionate evaluations. It seems to me that self-reports of how people feel about their lives tell us about their emotional states - which are an important component of well-being but do not tell the whole story.

One way to test survey ratings is to ask ourselves to what extent we would be prepared to rely on them in making decisions affecting our own well-being. It seems to me that income may be more important to people when they make decisions affecting their well-being than when they answer questionnaires about the quality of their lives. If you were in Europe contemplating a choice between moving your family to either the U.S. or NZ, would you consider the importance of differences in average income levels to be adequately reflected in survey ratings of the quality of life?

Postscript:
Survey ratings can also be tested by comparing them with actual migration patterns where free migration is allowed - as between New Zealand and Australia. Migration statistics for New Zealand show that in recent years permanent and long-term departures to Australia have exceeded arrivals from Australia by a factor of more than 3:1.

Would a chain index provide a better guide to change in the quality of life?

A chain index is an index that is constructed from information about changes in a variable from year to year, rather than by measuring absolute levels of the variable. A chain index is likely to be more accurate if we can measure change from year to year more accurately than we can measure absolute levels.

I think there is reason to believe that survey information yields more accurate information on change in quality of life than on absolute quality of life. I have explained why in a previous post (here).

In the following chart I have used information published by the Pew Research Center to construct a chain index of the quality of life from survey data on respondents assessments of their current quality of life and their assessments of their quality of life five years earlier (here). This provided estimated of the change in quality of life over the previous five years. The data on change in quality of life was annualized and converted to percentage changes. After gaps in the data were filled in by interpolation the series was converted into the form of the chain index shown below.

The happiness index shown in the chart is constructed from the Pew Research Center’s survey data on current quality of life.




The quality of life index shown in the chart actually shows a larger increase than the increase in real GDP per capita over this period. I therefore find it difficult to accept that the increase in quality of life was actually as large as is shown. The main point of the exercise is to suggest that the quality of life in the U.S. probably increased over this period by a larger magnitude than indicated by the happiness index shown in the chart.

(Research presented on this blog – as on any other blog - should be viewed with more caution than peer-reviewed research presented in academic journals. For quality assurance purposes I am prepared to make detailed results of research available to anyone who wants them and the data available to anyone who wants to replicate studies.)

Can our quality of life improve without us becoming happier?

Surveys undertaken by the Pew Research Centre enable comparisons to be made between ratings of quality of life at the present time and ratings of quality of life five years ago. The results for the U.S. (here) indicate that while respondent’s average ratings of current quality of life had moved up and down by small amounts when asked at various times over the last 40 years, they consistently reported that their quality of life was substantially worse five years ago - indicating that they perceived that they had experienced ongoing improvements in the quality of their lives.

These results suggest that people can perceive that the quality of their lives is improving even though their reports of quality of life at different points of time indicate that there has been no increase. Some people might suggest that this means that people have faulty memories of the quality of life they enjoyed in the past. I acknowledge that memories can be faulty, but I see no reason why people should systematically view the past as having been worse than the present. On the other hand, I can think of a good reason why current reports of quality of life may not show much change over time in the face of objective evidence of improvements in standard of living.

The use of survey information to measure the current quality of life involves the implicit assumption that when people rate their quality of life they do so relative to absolute standards. Respondents in the Pew survey are prompted to think in terms of a ladder of life in which the top step represents the best possible life and the bottom step represents the worst possible life. The use of successive surveys to measure change in the quality of life entails the assumption that perceptions about what constitutes the best possible life and the worst possible life remain fixed over time.

When you think about this, however, how can it be possible for anyone in a relatively high-income country to know what the best possible life, or the worst possible life, might be like throughout their own life-time? If you asked someone to rate how satisfied they were with life in the 1940s they would not have had much idea of the kind of life they might be able to live in 60 years time. They would not have known that many of the household appliances and communications devices that we now have would be within reach within their own life-time. They might have wished that such things could be invented and made affordable – just as I wished as a child in the 1950s that I could have a 2 way wrist radio like the one Dick Tracey had – but I don’t think such things would have been contemplated as actually attainable.

It is widely accepted among happiness researchers that in high income countries increases in standards of living may not translate to increases in happiness because aspirations tend to rise as incomes rise. I am not sure that many have realized, however, that if this process involves a change in perceptions about the best possible life it is changing the scale against which people are assessing their quality of life. Thus a person who felt that her quality of life had improved over time might report ratings of her quality of life at different points in time which indicated that she had stayed on the same rung of the ladder. The apparent conflict of perceptions has occurred because the ladder has shifted upwards.

If our aim is to use surveys to measure of happiness, as an emotion, it may be appropriate for the ladder (measurement scale) to move upward as perceptions change about the best possible life. If we are attempting to measure quality of life, however, we should recognise that an upward movement of the ladder - which occurs because of a change in perceptions of the best possible life - is itself evidence of improvement in the quality of life. In my view we should accept what people say when they report ongoing improvements in the quality of their lives and also to accept that this will not necessarily make them feel any happier than in the past.

In my next post I explore the possibility of using perceptions about changes in quality of life to construct a chain index showing how the perceived quality of life has changed over time.

Are there good reasons why income comparisons can influence happiness?

One of the findings of happiness research is that when people are asked how satisfied they are with life as a whole their answers often depend partly on comparisons of their income levels with those of other people. Thus, for example, some people whose income level has risen may report that their life satisfaction has gone down if their incomes have not kept pace with the growth in average incomes in the community in which they live.

Many of us tend to assume that those who allow interpersonal income comparisons to influence how they feel must be either be feeling envious or gaining pleasure from others being less fortunate than themselves. Either way, the most obvious solution is for them to get over comparing themselves to others.

However, there are some good reasons why people compare their incomes with those of others when considering how satisfied they are with their own lives. Consider an imaginary person who responds to the life satisfaction question by considering how her (his) life is unfolding compared with her expectations. She had clear expectations about some important aspects of what life might hold – for example, she knows what she expected married life would be like and whether it is turning out to be as she had expected. At the same time, although she had no idea what rate of increase in income she could expect to receive, she nevertheless has a strong view that her income has not increased in line with her expectations. She has come to this view because at an earlier stage of her career she had good reason to expect that her income would rise at about the same rate as the average incomes of the people she was working with at that time. The fact that her income has not kept pace with the average rate of increase in the incomes of her former work colleagues does not make her feel envious of them. She just feels disappointed that she has not been able to live up to her own expectations in this regard.

In this example the individual is using a comparison with incomes of a specific reference group merely as a source of information. There is research evidence that in some countries this information effect is positive and dominates any negative comparison effect. Research by Claudia Senik suggests that in transition countries (Russia, Hungary, Poland and three Baltic countries) the life satisfaction of individuals rises when the income of their reference group -people with the same skills and occupation - increases (see here). Her explanation is that in these countries people consider that their own future prospects to be better when the income of their professional peers rises. By contrast, in EU countries increases in incomes of the reference group tend to reduce life satisfaction - people tend to assess how well they are doing relative to their reference group. The difference seems to stem from the greater income volatility and uncertainty of the transition countries.

The important point is that when people use income comparisons in assessing how satisfied they feel we should not assume that they perceive themselves to be involved in some kind of rat race. They may merely be using comparisons to consider their own expectations.

What should we make of survey results showing no increase in happiness as income rises?

The issue I want to address is whether survey results showing little or no increase in happiness as incomes rise in high income countries mean that further economic growth is not worth having in those countries. I will assume that the observation of no increase in happiness as incomes rise cannot be attributed to factors such as changes in income distribution. (For a reference discussing this possibility with regard to the U.S. see here.)

First we should clarify the relationship between increases in income and increase in happiness in economic terms. It seems to me that in terms of economic theory what a person would be doing in comparing his happiness at different times would be analogous to calculating the change in value of his/her assets by discounting the future flows of income they are expected to produce. In computing his happiness level this person would ignore the past and just consider the expected future flows of goods of all kinds and the satisfaction that he/she and his/her family will derive from them.

How relevant are the happiness and satisfaction concepts measured in surveys to this concept of happiness as the discounted present value of the future? If surveys can be viewed as akin to barometers which measure how people are feeling about the direction of events affecting their well-being, they have some relevance. But if incomes just keep rising as expected, people will not necessarily record higher levels of satisfaction.

The economic concept of happiness as the discounted present value of the future seems somewhat at odds with prevailing psychological theory relating to subjective well-being – although a reconciliation may be possible. The set-point model, which is pivotal in the field of subjective well-being (SWB), suggests that while people may initially react strongly to events affecting them, their SWB subsequently returns to a stable level (set point) determined by their personality predispositions.

In its original form the set-point model implied that no matter what benefits an increased flow of goods and services may provide to individuals in helping them to achieve their goals, it will not result in any long-term improvement in measured SWB. This view has been modified in the light of evidence that set points can change as a result of a variety of factors, including widowhood and unemployment. A recent study by Frank Fujita and Ed Diener using panel data for Germany covering 17 years of life satisfaction judgements showed that almost 9 percent of respondents changed 3 or more scale units (on a 10 point scale) from the first five year average to the final five year average. Nevertheless, the majority of respondents showed long term stability in life satisfaction between the beginning and end of this period ( ‘Life satisfaction set point: stability and change’, Journal of Personality and Social Psychology, 88 (1), 2005).

It seems to me that these changes in set-points may correspond to the kinds of changes a forward looking person might calculate in his/her happiness stocks when life does not turn out as expected. For example, people who suffer large losses on the share market often tend to become more pessimistic about the future and discount future earnings more heavily as result - and this pessimism may also be reflected in a decline in their happiness assessments. Similarly a period of unemployment may cause a person to be more pessimistic in valuing his/her human capital and this will be reflected in a decline in happiness assessments.

To sum up, it does not seem to me that there are strong grounds in terms of set-point theory to expect avowed happiness to continue to increase in high income countries in which economic growth has come to be expected as a normal part of life. However, the discounted present value of the future could be expected to continue to rise under those circumstances. In other words, a future in which incomes continued to rise could be expected to be valued more highly than one in which incomes were stationary.

Those who argue that economic growth is not worth having when it has little or no effect on set point levels might change their view if they considered whether they would also be prepared to argue against other things, for example marriage, on the same grounds.

Would you rather be a rich person in a poor country or a poor person in a rich country?

A few months ago, Dani Rodrik asked readers of his blog the old question: “Would you rather be poor in a rich country, or rich in a poor country?”
He added the following specifications:
Assume you care only about your own consumption
Define poor and rich as someone who is the in the bottom or top decile of a country
Define poor and rich country analogously as a country in the bottom or top decile of the distribution of per-capita incomes across countries.
Some time later he told readers that the correct answer is that a poor person in a rich country is three times better off than a rich person in a poor country. He used average incomes in each decile (for 2004 PPP adjusted) to assess whether people would be better off. So far so good.

However, Rodrik received several comments along the following lines:
Though monetarily a poor person in a rich country might be better off, this says nothing about the actual welfare of this person. There are numerous studies showing that happiness is directly correlated to relative income.

Those comments may seem fair enough. But are they supported by what people say about how satisfied they are with their lives?

In order to test this I have used data on percentages of lower, middle and upper income groups who are satisfied with life as a whole for 66 countries. The data was sourced from surveys conducted over the period 1999 - 2002. (See: Ronald Inglehart et al, Human Beliefs and Values, Siglo XXI Editores, Mexico, 2004, A 170.)

Observations for each country were ranked according to average income as a percentage of U.S. levels in 2000. The relevant averages for each quintile of countries are presented in the table below. (There are 14 countries represented in the first quintile and 13 in each of the others. Australia is in the fifth quintile and New Zealand is in the fourth quintile.)

The data in the table suggest that, despite status considerations, the probability of a lower income person in a high-income country being happy is about 60 percent greater than the probability an upper income person in a low-income country being happy (100x(71.3 - 44.6)/44.6 = 60). Rodrik’s answer is still correct, although the margin is smaller under the assumptions of the calculation that I have made.

Another interesting point suggested by the data in the table is that it matters a great deal more whether you are rich or poor if you happen to live in a low-income country - where incomes of the poor are more likely to be close to subsistence levels . In low-income countries (first quintile) the probability of an upper income person being happy is about 66 percent greater than the probability of a lower income person being happy (100x(44.6 – 26.9)/26.9 = 66). By contrast, the corresponding figure for high-income countries (fifth quintile) is about 23 percent.

How does probability of happiness vary with income level?

It has often been observed that cross-country comparisons show a strong positive relationship between average income levels and average happiness levels up to about 50 percent of U.S. income, with no clear relationship after that.

However, a different picture emerges when we group countries according to income levels and look at percentages of people who claim to be satisfied with life as a whole. I have used data on percentages of lower, middle and upper income groups who are satisfied with life as a whole for 66 countries. The data was sourced from surveys conducted over the period 1999 - 2002. (See: Ronald Inglehart et al, Human Beliefs and Values, Siglo XXI Editores, Mexico, 2004, A 170.) Observations for each country were ranked according to average income as a percentage of U.S. levels in 2000.

The results are shown below. The average percentages for countries in the 5th quintile (average income of 76 percent of the U.S. level in 2000) who are satisfied with life as a whole is considerably higher than for the 4th quintile (average income of 46 percent of the U.S. level).

Does income inequality lead to happiness inequality?

It seems reasonable to expect that the difference between the probability of happiness of people on upper incomes and those on lower incomes would depend on the degree of income inequality in the country in which they live.

This proposition can be tested simply by calculating the gap between the percentage of upper and lower income people who claim to be satisfied with life in each of a large number of countries and then ranking them by the gini coefficient (or some other measure of income inequality) and calculating gap averages for groups of countries. I have used data on percentages of lower, middle and upper income groups who are satisfied with life as a whole for 66 countries. The data was sourced from surveys conducted over the period 1999 - 2002 (see Ronald Inglehart et al, Human Beliefs and Values, Siglo XXI Editores, Mexico, 2004, A 170).

The results are shown below.




If income inequality causes happiness inequality we should expect to see lower average gaps between happiness of people on upper and lower income in countries with relatively low levels of income inequality. That is not what the chart shows.

Similar results have been found in a study by Jan Ott. In a study covering 64 countries this researcher found that inequality of income tends to go together with higher levels of happiness and more inequality of happiness. The correlations are not substantial, but the result challenges conventional wisdom. (See: ‘Level and inequality of happiness in nations’, Journal of Happiness Studies, 2005, p 408-9).

Is anything left of the Easterlin paradox?

Richard Easterlin proposed in 1974 that there is no link between the level of economic development of a society and the overall happiness of its members: “raising the incomes of all does not increase the happiness of all”. There were two legs to Easterlin’s paradox. The first was his claim that subjective well-being is generally no higher in high income countries than in low income countries. The second was his observation that average levels of happiness do not appear to rise through time as societies become richer.

The first claim was always dubious and it has become more obvious that it is wrong as comparable data has been collected for a broader range of countries. Recent cross-section studies provide strong evidence that average levels of subjective well-being are higher in high income countries than in low income countries. Furthermore, there is no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. (For a recent discussion on the Freakonomics blog, click here.)

The second claim was based on time series data of happiness for the United States, Europe and Japan since the 1950s. The data for Japan was of particular concern. If rapid economic growth brought no improvement in avowed well-being to the people of Japan during the period from the 1950s to the end of the 1980s, did we have sufficient reason to believe that rapid growth in other low and medium income countries would result in improvements in well-being?

A recent study by Betsey Stevenson and Justin Wolfers (Economic growth and subjective well-being: reassessing the Easterlin paradox, shows convincingly that the apparent failure of subjective well-being to rise with increasing wealth in Japan can be attributed to changes in the questions asked in surveys. Within periods when the same questions were asked subjective well-being rose strongly as incomes rose.

The authors update Easterlin’s original study of trends in life satisfaction in Europe and conclude that the addition of data for more recent years and show that, although there are exceptions, life satisfaction has typically risen in those countries as income has risen.

Stevenson and Wolfers also conduct an analysis of U.S. data which suggests that the failure of happiness to rise with income in the U.S may have something to do with incomes of lower-income groups not rising as rapidly as high income groups. It seems to me that these findings might be difficult to reconcile with the findings of other research which suggests no relationship between income inequality and happiness inequality. (For example, see here.)

The authors acknowledge that their findings still admit a role for income comparisons in shaping subjective well-being. It seems to me that this is important because there is strong evidence that satisfaction with life depend on income aspirations – a moving target involving income comparisons - as well as on absolute income levels. In my view Steven Pinker made a good point when he suggested that humans nature enables us to calibrate our pursuit of happiness by what we can aspire to attain so that we can avoid fretting about not having things that are out of our reach (“How the Mind Works”, 1997, p 390).