Rich but not happier — why economic growth doesn’t always translate to happiness

It’s easy to assume that with economic gain comes happiness — we live in capitalism, after all. But science comes to prove us all wrong yet again, and shows that the link between economics and happiness is much more complicated that we thought. Research shows that getting a promotion or a salary raise can increase a person’s satisfaction and give an emotional boost, but only for a short while. Not even something as huge as winning the lottery doesn’t make a permanent change to people’s overall life satisfaction. Money can’t buy happiness, it seems.

And just as a person’s happiness is a result of more than just money, a country’s economic growth doesn’t directly translate into happier citizens — this is known as the Easterlin paradox, after economist Richard Easterlin, the one who observed and documented the phenomena in 1974.

So money can’t buy happiness for countries either, ok, cool. Only that for some…It totally does.

Image via davidruyet.wordpress

What gives!?

Critics have pointed out that in several countries — Italy, Denmark, Luxembourg for example — citizens’ happiness has increased in tandem with the local economy. But for the United States it hasn’t — the Easterlin paradox still applies here: major economic gains over the past 40 years have not led to an overall increase in national happiness. So why does that happen?

Well, psychological scientists Shigehiro Oishi from the University of Virginia and Selin Kesebir from London’s Business School think they may have found the reason why some countries show the paradox and others don’t: income inequality.

“Economic growth is typically not shared equally across segments of society and often results in increased income inequality,” the researchers explain. So, although a country’s GDP may be rapidly expanding, only relatively few people are actually benefiting from this economic prosperity.

The two tested their hypothesis, and their findings were published in the journal Psychological Science.

“Our analyses demonstrate that once one considers income inequality, the Easterlin paradox is not so paradoxical anymore,” the researchers write.

Drawing on data pertaining to economic growth, income inequality and reported happiness levels from 34 countries, Oishi and Kesebir found “support for the idea that the Easterlin paradox can be explained by the toxic effects of income inequality.” They started by mining data from the World Database of Happiness, looking at 16 developed countries in Europe and Asia that had at least 10 years of data available between 1959-2006. They correlated this with the countries’ GDP, taken from the World Development Indicators online database, and calculated income inequality for each, using the Gini index.

“For a nation’s life satisfaction to increase, producing more wealth is not sufficient. The fair distribution of the added wealth may critically determine whether life satisfaction will rise on the whole,” they write.

They found that changes in income equality was a better explanation for happiness better than GDP per capita alone. In years with high income equality, economic growth entailed an increase in general life satisfaction. In years with economic prosperity but large gaps in income equality there was no increase in a population’s happiness.

“What was surprising was that happiness levels did not change from 1947 when GDP per capita was $13,407 (in current dollars) to 1970 when GDP per capita rose to $22,996,” the authors explain. “On the basis of our findings, it is safe to say that if income and happiness go together, it is when income is distributed evenly.”

A second set of data was collected from the Latinobarómetro, a representative public opinion survey conducted annually in 18 Latin American countries and Spain. In both sets of analyses, the researchers found a significant interaction between GDP per capita and the Gini coefficient; citizens’ life satisfaction, on average, was lower in years of greater income inequality.

“Considering the recent trend of growing income inequality in many parts of the world, our findings suggest that more instances of the Easterlin paradox will be observed, with economic growth not necessarily increasing the happiness of a country’s citizens,” Oishi and Kesebir conclude.

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