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

80 Pages Posted: 27 Aug 2008

See all articles by Betsey Stevenson

Betsey Stevenson

University of Michigan at Ann Arbor

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

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Abstract

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.

Keywords: happiness, subjective well-being, Easterlin Paradox, life satisfaction, economic growth, well-being-income gradient, hedonic treadmill

JEL Classification: D6, I3, J1

Suggested Citation

Stevenson, Betsey and Wolfers, Justin, Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox. IZA Discussion Paper No. 3654, Available at SSRN: https://ssrn.com/abstract=1251022 or http://dx.doi.org/10.2139/ssrn.1251022

Betsey Stevenson (Contact Author)

University of Michigan at Ann Arbor ( email )

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Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

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