DP6944 Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox

Author(s): Betsey Stevenson, Justin Wolfers
Publication Date: August 2008
Keyword(s): Easterlin Paradox, economic growth, happiness, hedonic treadmill, life satisfaction, quality of life, subjective well-being, well-being-income gradient
JEL(s): D6, I3, J1
Programme Areas: Labour Economics, Public Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6944

The "Easterlin paradox" suggests that there is no link between a society?s economic development and its average level of happiness. We re-assess this paradox analyzing multiple rich datasets spanning many decades. Using recent data on a broader array of countries, we establish a clear positive link between average levels of subjective well-being and GDP per capita across countries, and find no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being. We show that the estimated relationship is consistent across many datasets and is similar to the relationship between subject well-being and income observed within countries. Finally, examining the relationship between changes in subjective well-being and income over time within countries we find economic growth associated with rising happiness. Together these findings indicate a clear role for absolute income and a more limited role for relative income comparisons in determining happiness.