Income and Happiness: A Unique Paradox

The Unique Paradox

At any given point in time rich people are substantially more happy on average when compared to poor people. This fact is contrasted to the notion that over a life cycle, societies and the people within those socities have not grown happier. The table below shows the how happiness within the top income quarter is higher compared to the bottom quarter. However a striking comparision is also highlighted; Nations have grown richer and their people gained more income, but the average happiness level has not changed from 1975 to 1978.

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Material Aspirations and Income

To describe the unique occurences with income and happiness, Richard Easterlin, looks at how income and aspirations vary from a point in time aspect, as well as looking over time. As adults begin their life cycle, their set of material aspirations are very similar. (shown as A1 on the graph) It is then plausible to assume that those with higher incomes would be able to fufill those wants with greater ease. This is shown on the graph by the various points 1,2,3. This explains why at any given moment individuals with a higher income are happier than those with a lower income. To explain why it seems that over a life cycle, happiness doesn't change as income increases Easterlin also uses some assumptions of material aspriations and income. He believes that as people increase their income, the set of material aspirations that conicide with the previous level change and rise. This rise in aspirations and income offset and instead of moving to points such as 3 or 4, the movement travels to point 5.

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Evidence

To help show that this theory is relevant and not merely speculation, Esterlin placed people from different age groups into two groups, those with more than a high school education (higher income) and those with only a high school education or less (lower income). When he did this the results shown were consistent with the theory. At any point in time those people in the higher income group were happier than those with a lower income, but if you looked at a overall view happiness didn't change.

To help strengthen his argument further, Easterlin shows evidence surrounding his assumptions about material aspirations.

• Assumptions Made
  1. preferences are very similar among income groups
  2. as the life cycle moves, the preferences vry in relation to income
  3. when people look at past and future happiness, people believe that their aspirations or preferences were identical as those held today

These are shown in the following Tables. Table 1 illustrates how at intial stages of the adult life cycle the preferences are very similar among income groups. This is intuitive to the concept that "initial differences in happiness by level of schooling must be due, according to this theory, to differences in income that make it possible for those with more schooling to attain material aspirations better than those with less."

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Table 2 follows these various groups down their life cycle paths and drives home another aspect of the theory. As the higher income group moves farther down its life cycle, material aspirations continually increase at a more rapid rate than their lower income counterparts. This is also consistent with a growth in income as well.

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This theory helps to shed light on the relationship between income and well-being. It shows that their is indeed a direct relationship with income along with inverse relationship of material aspirations in context of happiness.

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