Dec 26, 2012

Happiness Research: The importance of Absolute Income

Tow recently published paper in the journal Emotion look at the link between (absolute and relative) income and subjective well being. It seems that absolute income is more important than previously thought.

The first paper is by Sacks, Stevenson, and Wolfers:
Economists in recent decades have turned their attention to data that asks people how happy or satisfied they are with their lives. Much of the early research concluded that the role of income in determining well-being was limited, and that only income relative to others was related to well-being. In this paper, we review the evidence to assess the importance of absolute and relative income in determining well-being. Our research suggests that absolute income plays a major role in determining well-being and that national comparisons offer little evidence to support theories of relative income. We find that well-being rises with income, whether we compare people in a single country and year, whether we look across countries, or whether we look at economic growth for a given country. Through these comparisons we show that richer people report higher well-being than poorer people; that people in richer countries, on average, experience greater well-being than people in poorer countries; and that economic growth and growth in well-being are clearly related. Moreover, the data show no evidence for a satiation point above which income and well-being are no longer related. (PsycINFO Database Record (c) 2012 APA, all rights reserved)

The second by Robert Frank:
The traditional view that well-being depends on both absolute and relative income was challenged in a 1974 paper by Richard Easterlin (Does economic growth improve the human lot? In P. David and M. Reder (Eds.), Nations and households in economic growth: Essays in honor of Moses Abramovitz (pp. 89–125), New York: Academic Press). He noted that although individual well-being is strongly positively associated with income within any country at a given point in time, the average level of measured well-being for a country changes little over time, even in the face of substantial growth in average incomes. For decades, social scientists have struggled to explain this “Easterlin Paradox.” In a 2008 paper, Betsey Stephenson and Justin Wolfers (Economic growth and subjective well-being: Reassessing the Easterlin Paradox, Brookings Papers on Economic Activity, Vol. 39, pp. 1–87) argued that the Easterlin Paradox was a statistical illusion. Using richer data sets that facilitate more precise estimates of the various links between income and well-being, they assert that average well-being in a country does, in fact, rise as average income rises over time, and that rich countries are happier than slightly poorer ones. They also suggest that the link between income and well-being may run through absolute income alone—that is, that individual well-being may be completely independent of relative income. In this article, I argue that there have always been good reasons to believe that well-being is positively linked to absolute income. I also argue, however, that there is no reason to believe that individual well-being is independent of relative income. (PsycINFO Database Record (c) 2012 APA, all rights reserved).
Alas, the full papers are not online.  

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