Career Testing
Career Testing
Career Testing
SALARIES / MAR. 12, 2014
version 2, draft 2

Happiness “dips” After £22,000 GPD Per Person

Happy

Can money make you happy? Yes, but only to a point. And that point, according to Warwick University Economists is at £22,000.

The study researched the links between money and happiness and found that in wealthy countries, people experience a happy ”maximum” as they reach an income of £22,000, and then happiness starts to dip.

Published in Plos One, the Economists aimed to reassess the relationship between GDP – Gross Domestic Product - and life satisfaction.

Led by Professor of Economics, Eugenio Pronto, at Warwick University, and Dr Aldo Rustichini of the Centre for Cognitive Sciences, Minnesota, the study looked into how happiness, or “life satisfaction” was affected by the rise or fall of a country’s economy.

Findings showed that in the poorest countries, happiness was closely linked to the GDP as people’s life satisfaction increased with their renewed ability to meet their basic needs for food, housing and goods.

In rich countries, however, once income reaches around £22,000, life satisfaction peaks and then appears to dip.

Why the dip?

This “dip” in happiness is caused by a rise of aspirations which, when not met, leads to disappointment and dissatisfaction. In effect, the rise in income creates a less attainable set of “Joneses” for people to keep up with.

Dr Proto said:

“As countries get richer, higher levels of GDP lead to higher aspiration. But this aspiration gap – the difference between actual income and the income we would like – eats away at life satisfaction levels. In other words, what we aspire to becomes a moving target and one which moves away faster in the richest countries, causing the dip in happiness we see in our analysis.”

People in countries with a GDP per capita of below £4,024 were 12 % less likely to report the highest level of life satisfaction than those in countries with a GDP per capita of around £11.000.

As countries reached £13,000 GDP per capita, the increase in happiness that higher wealth brings became minimal. The probability of reporting the highest level of satisfaction changes by only two per cent between and the very highest GDP per capita of £33,000.

This corresponds with the well-known Easterlin Paradox or “happiness-economics” – that the link between life satisfaction and GDP is more or less flat in richer countries. Rather than continuing to increase or flatten as studies have suggested, this study shows a drop in life satisfaction once countries go beyond a level of GDP per capita of £22,000.

Data on life satisfaction was sourced from the World Values Survey and GDP figures which, in a new approach to looking at the issue of wealth and happiness, were analysed as “quantiles” - points taken at regular intervals.

By analysing the data in this way, researchers were able to avoid imposing restrictions on the “econometric model” – a statistical model used in economics. This also enabled for a control for country-fixed effects in order to exclude differences due to culture, translation and linguistic issues.

Dr Proto adds:

“Whether wealth can buy a country’s happiness is a major question for governments. Many policy-makers, including in the UK, are interested in official measures of national well-being. Our new analysis has one very surprising finding which has not been reported before – that life satisfaction appears to dip beyond a certain level of wealth.”

What do you think? Is £22,000 enough to be happy with in the UK?

Notes:

Plus One: A Reassessment of the Relationship between GDP and Life Satisfaction

Image credit: with thanks to Sanja Gjenero of RGB Free Stock

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