The Easterlin paradox at 50

Ekaterina Oparina, Andrew E. Clark and Richard Layard

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We use Gallup World Poll data from over 150 countries from 2009-2019 at both the individual and country levels to revisit the relationship between income and subjective wellbeing. Our inspiration is the paradox first proposed by Easterlin (1974), according to which higher incomes are associated with greater happiness in cross-sections yet increases in a country's GDP per head do not increase its average wellbeing. In our analysis subjective wellbeing (or happiness) is measured by the Cantril ladder on a 0-10 scale. Across individuals, other things equal, one unit of log income raises subjective wellbeing by 0.4 points. In other words, doubling income raises wellbeing by 0.3 points out of 10. Across countries, a crude regression of log income on per capita income gives a higher coefficient of 0.6. But, once social variables like health and social support are introduced, the picture changes. In rich countries, income no longer has a significant effect, either in country cross-sections or in time series: higher income only matters due to its correlation with the social variables. For low-income countries the result is also clear cut - income raises happiness in both cross-section and time series, whether the social variables are controlled for or not. For middle income countries the result is mixed.

Keywords: subjective wellbeing; income; GDP; Easterlin paradox; public goods (search for similar items in EconPapers)
JEL-codes: F15 R10 R12 (search for similar items in EconPapers)
Pages: 78 pages
Date: 2024-11-06
New Economics Papers: this item is included in nep-hea
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