While wealthier people tend to be happier than poorer people, countries do not necessarily become happier as they grow wealthier.
Fifty years ago, Richard Easterlin asked a fundamental question: Does getting richer make us happier? His work produced the Easterlin paradox: while the richer are happier than the poorer, as countries get richer their populations do not necessarily become happier.
We consider the link between income and happiness at both the individual and country level, using extensive Gallup World Poll data on over 150 countries from 2009 to 2019. Individual well-being is evaluated on a 0 to 10 scale, where 10 represents the best possible life.
Are people with higher incomes happier? The data confirms the first part of the Easterlin paradox: within any country the richer have higher subjective well-being. Doubling household income is associated with an 0.3-point rise in individual well-being. This figure effect is similar in rich and poor countries, and for men and women.
Are richer nations happier? The relationship becomes more nuanced at the aggregate level. Countries with higher GDP per capita generally have higher average levels of well-being. But this is not the whole story. The correlation is influenced by other variables such as healthy life expectancy and social support networks like having friends or family to rely on. Once these social factors are considered, higher GDP is no longer correlated with average happiness in high-income countries. We cannot distinguish between mediation and reverse causality: higher GDP may produce better health and social relations (so that the latter are mediators); alternatively, both income and well-being may thrive in countries that are healthier and more socially supportive.
The situation is different in low-income countries. Here, higher GDP is associated with greater average happiness even after accounting for the social factors. Income thus appears to play a direct role in enhancing happiness, as well as an indirect role by helping people to improve their social well-being.
Does economic growth lead to greater well-being? The second part of the Easterlin paradox suggests that as countries become wealthier over time, their populations do not necessarily become happier. Our data largely support this part of the paradox for high-income countries, where there is no significant correlation between country GDP growth and the growth in happiness over the 2009-2019 period. This is in line with the longer-run trends in affluent nations like the US (the subject of Easterlin’s original work), West Germany and Australia, where substantial economic growth has not been accompanied by a corresponding rise in average happiness.
Conversely, in low- and middle-income countries, increases in GDP do seem to translate into greater well-being over time. This suggests that economic development for these nations has a more direct and beneficial impact on the happiness of their citizens, even when controlling for social variables.
What are the implications of these findings? 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 the 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 well-being, factors beyond mere economic expansion are vital for fostering a happier national population, especially in richer societies. Understanding this is crucial for policymakers striving to improve the overall quality of life of their electorates and address inequalities in a broader sense. This helps to explain why in rich countries average well-being is a better predictor of election outcomes than economic growth is. For lower-income nations, however, economic growth continues to be an indispensable tool for improving human well-being.
© Ekaterina Oparina, Andrew E. Clark, and Richard Layard
Ekaterina Oparina is Research Economist at the Centre for Economic Performance of the London School of Economics and a Research Affiliate at the Well-being Research Centre at the University of Oxford, UK
Andrew E. Clark is is a CNRS Research Professor at the Paris School of Economics, France, and IZA@LISER Research Fellow
Richard Layard is Emeritus Professor at the London School of Economics, Head of the Programme on Well-Being at the Centre for Economic Performance, member of the House of Lords, UK, and IZA@LISER Research Fellow
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