Is anything left of the Easterlin paradox?

Richard Easterlin proposed in 1974 that there is no link between the level of economic development of a society and the overall happiness of its members: “raising the incomes of all does not increase the happiness of all”. There were two legs to Easterlin’s paradox. The first was his claim that subjective well-being is generally no higher in high income countries than in low income countries. The second was his observation that average levels of happiness do not appear to rise through time as societies become richer.

The first claim was always dubious and it has become more obvious that it is wrong as comparable data has been collected for a broader range of countries. Recent cross-section studies provide strong evidence that average levels of subjective well-being are higher in high income countries than in low income countries. Furthermore, there is no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. (For a recent discussion on the Freakonomics blog, click here.)

The second claim was based on time series data of happiness for the United States, Europe and Japan since the 1950s. The data for Japan was of particular concern. If rapid economic growth brought no improvement in avowed well-being to the people of Japan during the period from the 1950s to the end of the 1980s, did we have sufficient reason to believe that rapid growth in other low and medium income countries would result in improvements in well-being?

A recent study by Betsey Stevenson and Justin Wolfers (Economic growth and subjective well-being: reassessing the Easterlin paradox, shows convincingly that the apparent failure of subjective well-being to rise with increasing wealth in Japan can be attributed to changes in the questions asked in surveys. Within periods when the same questions were asked subjective well-being rose strongly as incomes rose.

The authors update Easterlin’s original study of trends in life satisfaction in Europe and conclude that the addition of data for more recent years and show that, although there are exceptions, life satisfaction has typically risen in those countries as income has risen.

Stevenson and Wolfers also conduct an analysis of U.S. data which suggests that the failure of happiness to rise with income in the U.S may have something to do with incomes of lower-income groups not rising as rapidly as high income groups. It seems to me that these findings might be difficult to reconcile with the findings of other research which suggests no relationship between income inequality and happiness inequality. (For example, see here.)

The authors acknowledge that their findings still admit a role for income comparisons in shaping subjective well-being. It seems to me that this is important because there is strong evidence that satisfaction with life depend on income aspirations – a moving target involving income comparisons - as well as on absolute income levels. In my view Steven Pinker made a good point when he suggested that humans nature enables us to calibrate our pursuit of happiness by what we can aspire to attain so that we can avoid fretting about not having things that are out of our reach (“How the Mind Works”, 1997, p 390).