Fifty years ago, Richard Easterlin asked a fundamental question: does getting richer make us happier? His work gave rise to the Easterlin paradox: while wealthier individuals tend to be happier than poorer people, as countries get richer their populations don’t get significantly happier. Ekaterina Oparina, Andrew E. Clark and Richard Layard provide fresh insights into this paradox.

The latest World Happiness Report highlights that while richer countries tend to have happier citizens – being the richest country (per capita) doesn’t make you the happiest. The report, now in its 13th year, highlights other factors which lead to happiness, including expecting kindness from others, sharing meals and social connections (particularly for young adults). So what role does income play in making people, and countries, happy?

Our recent discussion paper shows how the link between income and happiness varies across individuals and countries at different stages of economic development. To do this we draw on extensive data from the Gallup World Poll from over 150 countries between 2009 and 2019. The Gallup World Poll survey asks people to evaluate their wellbeing on a scale from 0 to 10 where 10 represents the best possible life.

Our findings confirm the first part of the Easterlin paradox: within any given country, richer individuals do indeed report higher levels of subjective well-being. Globally, we estimate that doubling an individual’s household income is associated with an increase of approximately 0.3 points on the 0-10 life satisfaction scale within each country.

This effect is similar in rich and poor countries. It is observed for people with different incomes and applies to both men and women. Notably, the impact of income on well-being appears to be more pronounced for individuals in middle age (between 35 and 65-years-old).

The national perspective is more complex

However, when we examine the connection between a country’s average income (GDP per capita) and the average happiness of its population, the relationship becomes more nuanced. Richer countries generally exhibit higher average levels of wellbeing.

But this correlation is significantly influenced by social variables such as healthy life expectancy and social support (having friends or family to rely on). In high-income countries, once these social factors are considered, higher income at the national level no longer has a significant independent effect on average happiness in cross-country comparisons. This suggests that in wealthier nations, the positive association between national income and wellbeing might largely stem from the fact that higher income is often linked to better health and stronger social networks.

In high-income countries, once various social factors are considered, higher income at the national level no longer has a significant independent effect on average happiness in cross-country comparisons

The situation is different in low-income countries. Here, higher national income is associated with greater average happiness, even after accounting for the social variables. In these contexts, income appears to play a more direct role in enhancing happiness, as well as an indirect role by helping people to improve their social wellbeing.

Does economic progress lead to greater wellbeing?

The second part of the Easterlin paradox suggests that as countries become wealthier over time, their populations do not necessarily report higher levels of happiness.

The findings of this study largely support this aspect of the paradox for high-income countries. Our analysis found no significant correlation between a country’s income growth and a growth in happiness during the 2009-2019 period. This aligns with long-term observations in affluent nations like the United States, West Germany and Australia, where substantial economic growth has not been accompanied by a corresponding rise in average happiness.

We found no significant correlation between a country’s income growth and a growth in happiness during the 2009-2019 period

Conversely, in low- and middle-income countries, increases in GDP do seem to translate into greater wellbeing over time. This suggests that economic development in non-high-income nations has a more direct and beneficial impact on the happiness of their citizens, even when controlling for social variables.

Policy implications for rich nations

This research carries significant implications for policymakers. For high-income countries, the findings suggest that solely focusing on economic growth at all costs may not be the most effective strategy for improving societal wellbeing. Instead, prioritising policies that strengthen social support networks, improve public health, and promote freedom and trust might have a more substantial impact on the happiness of their populations. The study underscores that in wealthier nations, the influence of income on happiness appears to be largely mediated through these vital social factors.

In contrast, for low-income countries, economic development remains a crucial lever for enhancing people’s quality of life and overall happiness. As these nations experience economic growth, the direct benefits of increased income, coupled with improvements in social factors, contribute to a happier population.

It is important to acknowledge that the 2009-2019 timeframe is relatively short for examining long-term trends, and that disentangling the direction of causality between income and social variables remains a challenge.

Despite these limitations, this research provides evidence that the relationship between money and happiness is multifaceted. While individual income can contribute to personal wellbeing, at the national level, especially in affluent societies, factors beyond mere economic expansion are vital for fostering a happier population. This understanding is crucial for policymakers striving to improve the overall quality of life and address inequalities in their broader sense. For lower-income nations, however, economic growth continues to be an indispensable tool for improving human wellbeing.

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This blog is based on the LSE’s Centre for Economic Performance (CEP) Discussion Paper, The Easterlin paradox at 50.

All articles posted on this blog give the views of the author(s). They do not represent the position of LSE Inequalities, nor of the London School of Economics and Political Science.

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