Over long haul, money doesn't buy happiness: 'Easterlin Paradox' revisited

December 13, 2010, University of Southern California

A new collaborative paper by economist Richard Easterlin — namesake of the "Easterlin Paradox" and founder of the field of happiness studies — offers the broadest range of evidence to date demonstrating that a higher rate of economic growth does not result in a greater increase of happiness.

Across a worldwide sample of 37 countries, rich and poor, ex-Communist and capitalist, Easterlin and his co-authors shows strikingly consistent results: over the long term, a sense of well-being within a country does not go up with income.

In contrast to shorter-term studies that have shown a correlation between income growth and happiness, this paper, to be published the week of Dec. 13 in the Proceedings of the National Academy of Sciences, examined the happiness and income relationship in each country for an average of 22 years and at least ten years.

"This article rebuts recent claims that there is a positive long-term relationship between happiness and income, when in fact, the relationship is nil," explained Easterlin, USC University Professor and professor of economics in the USC College of Letters, Arts & Sciences.

Easterlin and a team of USC researchers spent five years reassessing the Easterlin Paradox, a key economic concept introduced by Easterlin in the seminal 1974 paper, "Does Economic Growth Improve the Human Lot? Some Empirical Evidence."

"Simply stated, the happiness-income paradox is this: at a point in time both among and within countries, happiness and income are positively correlated. But, over time, happiness does not increase when a country's income increases," explained Easterlin, whose influence has created an entire subfield of economic inquiry.

With such wide-ranging influence, the Easterlin Paradox unsurprisingly has been the target of critique and revision, which Easterlin addresses in this PNAS paper.

In particular, Easterlin expands on findings from other researchers that show a positive relationship between life satisfaction and GDP, demonstrating instead that they are the short-term effects of economic collapse and recovery, and do not hold up over the long term.

"With incomes rising so rapidly in [certain] countries, it seems extraordinary that no surveys register the marked improvement in subjective well-being that mainstream economists and policy makers worldwide expect to find," Easterlin said.

For examples, Easterlin points to Chile, China and South Korea, three countries in which per capita income has doubled in less than 20 years.

Yet, over that period, both China and Chile showed mild, not statistically significant declines in life satisfaction. South Korea initially showed a mild, not statistically significant increase in the early 1980s. But in four surveys from 1990 to 2005, declined slightly.

"Where does this leave us? If is not the main route to greater happiness, what is?" Easterlin asks. "We may need to focus policy more directly on urgent personal concerns relating to things such as health and family life, rather than on the mere escalation of material goods."

In 2009, Easterlin was the winner of the prestigious IZA Prize in Labor Economics. Easterlin's next book, , Growth, and the Life Cycle, will be published by Oxford University Press as part of the IZA Prize series.

More information: Easterlin et al., "The Happiness-Income Paradox Revisited." Proceedings of the National Academy of Sciences: December 13, 2010.

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2.5 / 5 (8) Dec 13, 2010
A useless study trying to measure 'happiness'. Happiness, like any emotional state is transitory. You cannot be happy 24/7. Happiness is clustered around positive events in one's life and tends to subside as you become used the event. Same with sadness or anger or any other emotion, assuming you don't have a clinical condition like say depression or are constantly popping happy pills (which would skew such 'studies').
1 / 5 (2) Dec 13, 2010
This study is superficial. I live in a state with one of the highest per capita incomes. So comparing my income to other states says I have more income. But the cost of living here is much higher so my relative income isn't much if any more. The problem is that the more money you make the more other people take from you. That seems to be a universal law.

They need to measure what you can buy with your income, more income isn't necessarily better. I know I am much happier now being able to buy anything I want then when my income barely met my cost of living even though it was a high income compared to a low income state.

There are advantages to a high cost of living state where your income is generally higher. You can accumulate enough, higher social security benefits for one, to eventually move to a low cost of living area and have a comparatively higher lifestyle than if you had worked there to begin with.

And I am sure I am lot happier here than if I lived in Bangladesh.
1 / 5 (2) Dec 13, 2010
mo money, mo problems?
not rated yet Dec 13, 2010
You have no idea about Psychology, at all.
3 / 5 (3) Dec 14, 2010
Asking healthy people is not a good measure ~ how happy are those people who suffer illness that can not be cured or who die at an early age?

If we studied hunter gatherers we would find that they too were happy. But what a study like that would not show is the number of individuals who became sick and died or who were killed for religious reasons or driven out of the tribe.

Contrast this scenario ~ you poll those who buy a lottery ticket in the game of life but ignore all the losers...or in the 1930s you poll Germans as to their happiness but ignore those who are locked away in concentration camps or driven out of the country.

The survivors are always happy ~ it is the price that has been paid for that happiness that changes over time...(eg what percentage of Americans are incarcerated?)
not rated yet Dec 14, 2010
I wonder what the methods for determining happiness in this range of studies were.
3.3 / 5 (3) Dec 14, 2010
I agree. Today, even the poorest people in Western countries have things like cellular phones, VCRs, color TVs, microwave ovens, computers, Playstations, and of course food and clothing. But when I was a child, not even the richest had many of those things.

I believe that the money-related part of happines (if you will), is more related to how much you have compared to everybody around you. Thus, if everybody in a country double their income at the same time, then no change in happiness should ensue.

A large part of "Standard of Living" is about having a car your neighbor doesn't have. Any luxury item is sold for this express purpose. Going abroad and buying fashion, exotic brands of alcohol, or anything that can't be bought at home, is but an extension of I-have/you-don't mentality.

People associate money with all this, and go to Vegas or play the lottery.
5 / 5 (1) Dec 14, 2010
"Happiness" is not quite the same as "absence of misery". For instance, I like knowing that getting health care to deal with cancer or whatever will not be a problem, and I will choose this security over "happiness".
5 / 5 (2) Dec 14, 2010
Do research on the Easterlin Paradox - he has a seriously accurate point about money and happiness. It is not something to be applied on an individual level; it is a general study to prove a general statement. This study has been running for 30+ years, and during that time there were several phases making different claims, most of which state that money correlates with happiness up to a certain point. Your comments are unsubstantiated especially if they are based on only this article.
not rated yet Dec 14, 2010
Economics shows a devaluing of currency over time as more money supply enters the system. Also, as base wages are raised, the general populace can buy more, which reduces supply, causing an increase in pricing. So, sure the countries overall income rises, but they are no better off than they were before due to decreased value of their currency and basic supply/demand effect on prices of goods.

I don't know all of the details of the study, but at face value shouldn't that explain the "paradox"?
5 / 5 (1) Dec 14, 2010
All I ask is that I get enough money to prove or disprove this theory...
1 / 5 (1) Dec 14, 2010
Thought that there were studies showing happiness=money up to the poverty level? How much you have to make to live in your own home, drive your own car, pay your own utilites to include gas, electricity, water, sewer, trash, telephone, cable, internet, cell phone, and your own groceries minus booze and cigarettes? I will bet it is more than $10/hr. There are (365days - 104weekend-days)x8working-hrs/day=2088hrs. So, $10x2088=$20,880 before taxes. 25%x$20,880=$5220 goes to Uncle Sugar & Nannie-State. Even $10/hr is not enough to feed a family of 4. So, happiness is not $10/hr. I would even guess that it only starts at about $20/hr for a family of 4 in the US. I challenge Easterlin to live on $20 now. Remember, unemployment is even less money than $15k. How much happiness in in the unemployment line? How much happiness is in the company executive suites knowing that they had to move off shore and lay everybody off so that they could keep their jobs?
Happiness starts with the individual.
not rated yet Dec 14, 2010
Money may not buy happiness but at least you can be miserable in luxury :)
3 / 5 (1) Dec 14, 2010
I'm really not sure what to do with this information.

Seems like a good excuse for the wealthy to hang on to their wealth: I may be wealthy, but I may not be happy. So go ahead, and keep living your life in poverty. You many be happier. You may be starving - but you may be happier. (?)

It seems like this is taking statistics to its absurd end.
not rated yet Dec 15, 2010
..then give me your money
not rated yet Dec 16, 2010
yeah dutchman, than give your money and lead by example! The u.s. Treasury accepts donations.
1 / 5 (1) Dec 17, 2010
Happiness is about finding inner peace - with one's body, one's soul/psyche, and with one's mind.
The body needs some money to satisfy its need for food and shelter. But there's no need for a perfect body - handicapped people can be happy, too.
The soul needs its equilibrium - the ability to give, to accept, and to share with others.
The mind needs understanding the self, the other, and the world - and the knowledge about where knowledge is lacking.
Happiness and these abilities are interdependent; they are not of the cause-effect type.

No correlation with money. There are wealthy people who are happy; there are poor and unhappy people; and there are those with different combinations of happiness and wealth.
Most of the money-seekers are people without inner peace. They don't know what they are missing and they don't know its cure. That's why they are looking for the wrong remedy.

It's not wrong to get more money. But it's wrong to disrespect one's inner peace.
not rated yet Dec 18, 2010
it think the whole point is getting there, once you arrived you lose interest, must keep growing in pesonal/spiritual/financial/cognitive ways , hence gates and buffet are spending money on world problems, as they already have maximizid their potential in a single field, now what??? something else...

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