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Money can buy you love

By Andrew Leigh - posted Tuesday, 5 January 2010

Which would make you happier: a $1,000 holiday bonus (knowing that every other Australian worker got half as much), or $2,000 (knowing that everyone else got twice as much)?

For years, social scientists have puzzled over whether individuals care more about their absolute income or their income relative to others. Sparked by Richard Easterlin’s seminal 1974 paper, thousands of scholars have devoted their attention to the “Easterlin Paradox” - the apparent finding that increases in national incomes had no impact on self-reported happiness.

The Easterlin Paradox is no academic parlour game. If people only care about keeping up with the Joneses, then policies to increase economic growth are misguided. Since rapid national growth is likely to benefit Jones as much as me, it will not make either of us any happier. In its most radical form, this critique suggests that governments should let the growth rate stagnate, and find other ways of improving wellbeing.


In a recent article, University of Pennsylvania economists Betsey Stevenson and Justin Wolfers have revisited Easterlin’s original findings. Something of a Rose and Milton Friedman team, Stevenson and Wolfers are an academic couple whose work aims to tackle big questions through an exhaustive analysis of the data.

In studying happiness, Stevenson and Wolfers use hundreds of new surveys that have been conducted since the 1970s. Across countries, they find robust evidence that people in rich countries are happier than people in poor countries. On a 0 to 10 life satisfaction scale, respondents in Chad and Benin place themselves between 3 and 4; residents of India, Korea and Russia put themselves between 5 and 6; and people in Australia and most other developed countries place themselves between 7 and 8. A given percentage increase in GDP buys at least as much happiness in a rich country as a poor one.

This remains true when looking at other measures. For example, the Gallup World Poll asked people whether they had experienced various emotions the previous day. People in richer nations were more likely to have felt enjoyment and love, and less likely to have undergone pain, boredom, depression or anger.

For the most part, a similar finding holds when looking at the same country over time. In dozens of nations, rising incomes have bought higher levels of happiness. An exception is the United States, where average happiness has flatlined despite rising incomes. Score that one for Easterlin; but pretty much everywhere else on the globe, rising GDP has translated into more happiness.

Not content with having despatched one paradox, Stevenson and Wolfers propose one of their own. In a second paper, they put aggregate trends to one side in order to focus on the gender happiness gap. Since the 1970s, have women grown happier than men?

There are plenty of reasons to expect that this should have been the case. Employment discrimination has fallen substantially. Fewer jobs entail heavy-lifting, and more require interpersonal skills. Given that women have typically taken time off work to care for children, the pill and legalised abortion ought to have benefited women more than men. And because women have traditionally done more housework, the microwave, dishwasher, and vacuum cleaner should have made women happier than men.


Yet the reverse is true. In 12 out of 13 countries with long-run life satisfaction data, the growth in happiness has been smaller for women than for men. In the early-1970s, US women were happier than US men. Today, American men are the happier sex.

Probing the data, Stevenson and Wolfers find that the decline in happiness is not confined to particular groups of women. Among married and unmarried, young and old, working and non-working, parents and childless, a gender happiness gap has opened up.

While leaving the puzzle unsolved, they offer a few theories. Other large-scale social trends (more risk, less social capital) might have disproportionately made women less satisfied with their lives. The large-scale entry of women into the paid workforce may have led to unmet expectations at home and at work. Or it could be that the increased opportunities available to women have had the perverse effect of raising the bar required for a modern woman to declare herself happy.

For those of us who believe that the feminist revolution was fundamentally a good thing, Stevenson and Wolfers’ findings also urge a modicum of caution in placing too much weight on self-reported happiness as a measure of wellbeing. While life satisfaction surveys clearly capture an element of national wellbeing, they miss something of the texture of lived experience. As the philosophers have known for years, there is more to “the good life” than happiness.

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First published in the Australian Financial Review on December 15, 2009.

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About the Author

Andrew Leigh is the member for Fraser (ACT). Prior to his election in 2010, he was a professor in the Research School of Economics at the Australian National University, and has previously worked as associate to Justice Michael Kirby of the High Court of Australia, a lawyer for Clifford Chance (London), and a researcher for the Progressive Policy Institute (Washington DC). He holds a PhD from Harvard University and has published three books and over 50 journal articles. His books include Disconnected (2010), Battlers and Billionaires (2013) and The Economics of Just About Everything (2014).

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