Do Happiness and Economic Growth Rise and Fall Together?

by: Zubin Jelveh

For many years economists didn't think so.

In 1974, and again in 1995, Richard Easterlin, now of USC, famously showed that self-reported measures of happiness hadn't risen in Japan, Europe and the United States even after years of economic growth.

But more recent work has questioned that result, and now Betsey Stevenson and Justin Wolfers of Wharton have taken another crack at the data and found evidence that life satisfaction did in fact increase as the economy grew for both Europe and Japan. The United States remains the odd-nation out, however.

In the case of Japan, Stevenson and Wolfers found evidence that subjective well-being grew through 1992 but has since declined, coinciding with Japan's recession in the 1990's and slow recovery since.

As for the U.S., happiness was flat or may have actually declined between 1972 and 2006. The likely explanation for this is rising income inequality. This from NYT's David Leonhardt today:

Real median family income more than doubled from the late 1940s to the late '70s. It has risen less than 25 percent in the three decades since. Statistics like these are now so familiar as to be almost numbing. But the larger point is still crucial: the modern American economy distributes the fruits of its growth to a relatively narrow slice of the population.

This chart from Stevenson and Wolfers' paper, to be presented tomorrow at a Brooking Institute conference, shows how an index of happiness which was constructed by the pair has been relatively flat for the U.S. over the past 30+ years:

Turning their attention to less-developed countries, Stevenson and Wolfers found similar links between income growth and happiness. Interestingly, there also doesn't also appear to be a point at which more income doesn't go hand-in-hand with greater happiness:

We establish a clear positive link between GDP and average levels of subjective well-being across countries with no evidence of a satiation point beyond which wealthier countries have no further increases in subjective well-being.

While it's not true in every case -- for example, both Belgium and Ireland had declines in happiness as their economies grew -- the overall trend discovered by Stevenson and Wolfers seriously calls into question Easterlin's claim that "raising the incomes of all does not increase the happiness of all."