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Happiness does not come from higher income

December 13, 2013

People laugh as they take part in performing a group exercise during a laughter yoga class in St. Albans, England on Sunday, June 9, 2013. (AP Photo/ yonhap)

The latest addition to the burgeoning field of “happiness economics” has a sobering message for Britain: this is as good as it gets.

For years, economists have debated if there is a cut-off point beyond which growth adds nothing to wellbeing. Now – in a study published on Thursday, the day that official figures show the fastest growth for three years ㅡ two economists have gone a step further and estimated that “sweet spot” with some precision. And the U.K. has reached it.

According to Eugenio Proto of Warwick University and Aldo Rustichini of University of Minnesota, life satisfaction peaks when incomes per head ㅡ adjusted so that money buys the same basket of goods and services worldwide ㅡ reach $36,000 (39 million won) a year.

Per capita incomes in the U.K. on this basis are $37,000. Beyond this point, they say, we get richer but less contented.

Proto said: “Our new analysis has one very surprising finding which has not been reported before ㅡ that life satisfaction appears to dip beyond a certain level of wealth. In our study we see evidence that this is down to changes in the aspiration levels of people living in the richest countries.

“As countries get richer, higher levels of GDP lead to higher aspiration. There is a sense of keeping up with the Joneses as people see wealth and opportunity all around them and aspire to having more. But this aspiration gap – the difference between actual income and the income we would like – eats away at life satisfaction levels.

“In other words, what we aspire to becomes a moving target and one which moves away faster in the richest countries, causing the dip in happiness we see in our analysis.”

Using a mixture of survey evidence and GDP (gross domestic product) data, the study found a strong link between rising incomes and happiness for poor countries.

Nations with a GDP per head below $6,700 were 12 percent less likely to report the highest level of life satisfaction than countries with a figure of about $18,000.

But at about $20,000 GDP per capita, the link becomes less obvious, with people only 2 percent less likely to attain the highest levels of life satisfaction than in countries with the highest average incomes ($54,000). After $36,000, happiness falls slightly.

The study used a combination of survey evidence, adjusted to reflect cultural differences, and GDP data to judge if higher incomes make people happier.

Some economists are skeptical about this approach, saying life satisfaction does rise as incomes go up.

Philip Booth, editorial director at the Institute of Economic Affairs, said: “There are well-known problems in using happiness data in studies such as these, though the most comprehensive evidence suggests wellbeing does continue to rise with income.

“However, there are simple solutions if people feel happier on lower incomes ㅡ they can work less or they can migrate from countries such as the U.S. to countries such as Greece or South Korea. Neither of these things seem to be happening.”