Happiness in Economics: Age-Happiness Relationship

1.5 Happiness across countries: Easterlin Paradox Economic growth has long been considered an important goal of economic policy, yet in recent years some have begun to argue against further trying to raise the material standard of living, claiming that such increases will do little to raise well-being. These arguments are based on a key finding in the emerging literature on subjective well- being, called the “Easterlin paradox,” which suggests that there is no link between the level of economic development of a society and the overall happiness of its members. In several papers Richard Easterlin has examined the relationship between happiness and GDP both across countries and within individual countries through time. In both types of analysis he finds little significant evidence of a link between aggregate income and average happiness. 5 In contrast, there is robust evidence that within countries those with more income are happier. Richard Layard offers an explanation: “people are concerned about their relative income and not simply about its absolute level. They want to keep up with the Joneses or if possible to outdo them.” 6 While leaving room for absolute income to matter for some people, Layard and others have argued that absolute income is only important for happiness when income is very low. Layard argues, for example, that “once a country has over $15,000 per head, its level of happiness appears to be independent of its income per head.” 7 Let me draw a conclusion. Economists have probably been wrong to believe that economic growth makes societies happier. There is now an enormous amount of evidence that it will not. It is still debated; there is a small amount of evidence against. However, I would say the weight of the evidence is in line with Richard Easterlin‟s paradox. More broadly, policy in the coming century may need to concentrate much more on non-materialistic goals. Probably we will have to concentrate on what we might call GNH, Gross National Happiness, and not more on GDP. 5 Easterlin (1973, p. 4) summarizes his findings: “In all societies, more money for the individual typically means more individual happiness. However, raising the incomes of all does not increase the happiness of all. The happiness-income relation provides a classic example of the logical fallacy of composition, what is true for the individual is not true for society as a whole” 6 Layard (2005a, p. 45) 7 Layard (2003. p. 17). For other arguments proposing a satiation point in happiness, see Veenhoven (1991), Clark, Frijters, and Shields (2008), and Frey and Stutzer (2002) 8