, Volume 28, Issue 3, pp 195-223

The relationship between income and subjective well-being: Relative or absolute?

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Abstract

Although it appears that income and subjective well-being correlate in within-country studies (Diener, 1984), a debate has focused on whether this relationship is relative (Easterlin, 1974) or absolute (Veenhoven, 1988, 1991). The absolute argument advanced by Veenhoven states that income helps individuals meet certain universal needs and therefore that income, at least at lower levels, is a cause of subjective well-being. The relativity argument is based on the idea that the impact of income or other resources depends on changeable standards such as those derived from expectancies, habituation levels, and social comparisons. Two studies which empirically examine these positions are presented: one based on 18 032 college studies in 39 countries, and one based on 10 year longitudinal data in a probability sample of 4 942 American adults. Modest but significant correlations were found in the U.S. between income and well-being, but the cross-country correlations were larger. No evidence for the influence of relative standards on income was found: (1) Incomechange did not produce effects beyond the effect of income level per se, (2) African-Americans and the poorly educated did not derive greater happiness from specific levels of income, (3) Income produced the same levels of happiness in poorer and richer areas of the U.S., and (4) Affluence correlated with subjective well-being both across countries and within the U.S. Income appeared to produce lesser increases in subjective well-being at higher income levels in the U.S., but this pattern was not evident across countries. Conceptual and empirical questions about the universal needs position are noted. Suggestions for further explorations of the relativistic position are offered.