BPEA | Spring 2008

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

Betsey Stevenson and
Betsey Stevenson Professor of Public Policy and Economics - University of Michigan
Justin Wolfers
Justin Wolfers Nonresident Senior Fellow - Economic Studies

Spring 2008

The “Easterlin paradox” suggests that there is no link between
a society’s economic development and its average level of happiness. We
reassess 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 that between subjective 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.