The End of the Easterlin Paradox?

Remember the Easterlin Paradox? At a given point in time, the rich are happier than the poor. But as countries get richer, they don’t become happier, because everyone gets richer. It says only relative income matters.

In a new paper, Sacks, Stevenson and Wolfers suggests the paradox does not hold. They show that absolute income matters for happiness. The relationship holds across individuals in a given country, across countries at a moment in time, and across time in a given country. Moreover, their results suggest this relationship is very stable across time, countries and income. You can see their figure for the cross section of countries here. For their numerous figures on the time series of happiness and growth, follow the link to their paper.

"Across each of these countries, the relationship between income and satisfaction is remarkably similar. Our graphical analysis suggests that subjective well being rises with the log of income. This functional form implies that a 20 percent rise in income has the same impact on well-being, regardless of the initial level of income: going from $500 to $600 of income per year yields the same impact on well-being as going from $50,000 to $60,000."