There is no Easterlin Paradox!

The Easterlin Paradox is fundamental to the argument that focusing on material well-being does not promote overall well-being beyond a certain point. A new NBER paper argues that the Easterlin paradox simply does not hold. Richer countries are happier even at very high levels of income. We have been looking a lot at this in Ireland and, in general, well-being did decrease during the 1980's economic downturn. The data from 1994-2001 (during the height of the boom) do not show much increase in GHQ-12 measures but there were certainly increases in things like financial satisfaction (e.g. see an early version of a forthcoming paper we did on the topic below). In short, Ireland provides reasonable evidence for what Stevenson and Wolfers are saying though the dramatic increase in suicide during the economic boom is very difficult to explain from the point of view that income increases make people happier.

http://www.nber.org/papers/w14282

http://ideas.repec.org/p/ucd/wpaper/200609.html


Betsey Stevenson, Justin Wolfers

NBER Working Paper No. 14282
Issued in August 2008
NBER Program(s): EFG LS ME


---- Abstract -----

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.