The relationship between economic growth and happiness is not as straightforward as it first appears. While higher income is associated with greater wellbeing, other factors like healthcare and friendship are important too, especially in richer countries.
Fifty years ago, Richard Easterlin asked a fundamental question: does getting richer make us happier? His work gave rise to the Easterlin paradox: while the wealthy tend to be happier than poorer people, as countries get richer their populations don’t necessarily get happier. Recent analysis of international data shows the paradox still holds for high-income countries, while for low-income countries increasing income is associated with increased wellbeing.
International data on wellbeing from over 150 countries provides insights into the relationship between income and happiness.
For individual people the picture is clear – other things equal, richer people report higher wellbeing on average than poorer people.
The picture is more nuanced at the national level and varies by income group. Among low-income countries, those with higher incomes report higher average wellbeing. This is true both across countries and over time. But among high-income countries, this relationship no longer holds – richer countries are not happier than poorer countries once ‘social variables’, like health and social networks, are accounted for. Nor do they become happier over time once these factors are accounted for. This supports the original Easterlin proposition for these countries.
These findings have important implications for policy-makers. Economic growth remains vital to improving wellbeing for low-income countries. But for high-income countries, prioritising policies that strengthen social support networks, improve public health, and promote freedom and trust might have a more substantial impact on the happiness of their populations.
Are people with higher incomes happier?
Our recent Discussion Paper shows how the link between income and happiness varies across individuals and countries at different stages of economic development. The research draws on extensive data from the Gallup World Poll from over 150 countries between 2009 and 2019. The survey asks people to evaluate their wellbeing on a scale from 0 to 10, where 10 represents the best possible life.
The research confirms the first part of the Easterlin paradox: within any given country, richer people do indeed report higher levels of subjective well-being. Globally, it is estimated that doubling an individual's household income is associated with an increase of approximately 0.3 points on the 0-10 life satisfaction scale within each country. This effect is similar in rich and poor countries. It is observed for people with different incomes and applies to both men and women. Notably, the impact of income on wellbeing appears to be more pronounced for individuals in middle age (between 35 and 65-years-old).
Figure 1. Average wellbeing scores for people at different income levels
Source: Gallup World Poll
Note: Average reported wellbeing is plotted by equivalised household income bands of one thousand PPP Dollars. The red line shows predicted well-being based on a simple linear regression of the Cantril ladder on the logarithm of income per head.
Are richer nations happier?
The relationship is more nuanced when it comes to examining the connection between a country's average income (GDP per capita) and the average happiness of its population.
Richer countries generally exhibit higher average levels of wellbeing. Figure 2 shows that, globally, respondents in countries with higher GDP per capita (horizontal axis) report higher average wellbeing (vertical axis). Each dot represents the average reported level of wellbeing for a given GDP band. The line shows that wellbeing rises with income, but at a diminishing rate.
Figure 2. Average national wellbeing for countries with different GDP per capita. Gallup, 2009-2019.
Source: Gallup World Poll
Note: 157 countries. Results are grouped into ranges (‘bins’) to show the underlying trend.
But this isn’t the whole story. The correlation is influenced by other variables such as healthy life expectancy and social support networks like having friends or family to rely on. Once these social factors are considered, higher income at the national level no longer has a significant effect on average happiness for high-income countries (those on the right of the graph). This suggests that among wealthier nations, the positive association between national income and wellbeing might largely stem from the fact that higher income is often linked to better health and stronger social networks.
The situation is different in low-income countries (those on the left of the graph). Here, higher national income is associated with greater average happiness, even after accounting for the social factors. In these contexts, income appears to play a more direct role in enhancing happiness, as well as an indirect role by helping people to improve their social wellbeing.
Does economic growth lead to greater wellbeing?
The second part of the Easterlin paradox suggests that as countries become wealthier over time, their populations do not necessarily report higher levels of happiness. The findings of this study largely support this aspect of the paradox for high-income countries. The analysis found no significant correlation between a country's income growth and a growth in happiness during the 2009-2019 period. This aligns with long-term observations in affluent nations like the United States (the subject of Easterlin’s original work), Germany and Australia, where substantial economic growth has not been accompanied by a corresponding rise in average happiness.
Conversely, in low- and middle-income countries, increases in GDP do seem to translate into greater wellbeing over time. This suggests that economic development for these nations has a more direct and beneficial impact on the happiness of their citizens, even when controlling for social variables.
What are the policy implications of these findings?
This research carries significant implications for policy-makers. For high-income countries, the findings suggest that solely focusing on economic growth at all costs may not be the most effective strategy for improving societal wellbeing. Instead, prioritising policies that strengthen social support networks, improve public health, and promote freedom and trust might have a more substantial impact on the happiness of their populations. The study underscores that in wealthier nations, any influence of income on happiness appears to be largely mediated through these vital social factors.
In contrast, for low-income countries, economic development remains a crucial lever for enhancing people's quality of life and overall happiness. As these nations experience economic growth, the direct benefits of increased income, coupled with improvements in social factors, contribute to a happier population.
It is important to acknowledge that the 2009-2019 timeframe is relatively short for examining long-term trends, and that disentangling the direction of causality between income and social variables remains a challenge.
Despite these limitations, this research provides evidence that the relationship between money and happiness is multifaceted. While individual income can contribute to personal wellbeing, factors beyond mere economic expansion are vital for fostering a happier national population, especially in more affluent societies. Understanding this is crucial for policy-makers striving to improve the overall quality of life of their electorates and address inequalities in a broader sense. This helps to explain why in rich countries average wellbeing is a better predictor of election outcomes than economic growth is. For lower-income nations, however, economic growth continues to be an indispensable tool for improving human wellbeing.
Where can I find out more?
- The Easterlin Paradox at 50 – Centre for Economic Performance (CEP) discussion paper by Ekaterina Oparina, Andrew E. Clark and Richard Layard
- Wellbeing: Science and Policy – this textbook by Richard Layard and Jan-Emmanuel De Neve integrates the latest research on life satisfaction to propose evidence-based policies aimed at improving societal wellbeing
- whatworkswellbeing.org – this website provides evidence and resources on wellbeing in the UK, from the What Works Wellbeing centre which operated from 2014 to 2024
