, Volume 6, Issue 3, pp 219-239

Does More Money Make You Happier? Why so much Debate?

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Abstract

Easterlin’s famous paradox questioned standard economic assumptions about a fundamental relationship in economics: that between happiness and income. In recent years there has been renewed debate about the paradox. In this essay, I highlight some of the methodological issues and challenges underlying that debate. I focus on the sensitivity of the results to the method selected, the choice of micro or macro data, and the way that happiness questions are defined and framed, all of which result in divergent conclusions. I also note the mediating role of the pace and nature of economic growth, institutional frameworks, and inequality. What is most notable is the remarkable consistency in the determinants of individual happiness – including income – within countries of diverse income levels and, at the same time, how happiness is affected by cross-country differences that are related to average per-capita income levels, such as political freedom and public goods. Income clearly plays a role in determining both individual and country level happiness. Still, assessing its role relative to other more difficult to measure factors as countries develop in new ways and at different rates will remain a challenge for the foreseeable future.

The author is Senior Fellow and Charles Robinson Chair at the Brookings Institution and College Park Professor at the University of Maryland. This essay draws heavily on a paper she co-authored with Soumya Chattopadhyay and Mario Picon for an October 2008 Princeton Conference on International Differences in Well-Being. The authors would like to thank Peyton Young, Andrew Felton, and Charles Kenny, as well as the participants and reviewers from the Princeton conference for very helpful comments. Also see Graham et al. (2010a).
This manuscript is adapted from Happiness around the World: The Paradox of Happy Peasants and Miserable Millionaires (authored by Carol Graham and published by Oxford University Press in 2009). Available direct from Oxford University Press at: http://www.oup.com/uk/catalogue/?ci=9780199549054