Nber Working Paper Series Economic Growth and Subjective Well-being: Reassessing the Easterlin Paradox

The "Easterlin paradox" suggests that there is no link between a society's economic development and its average level of happiness. We re-assess 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 the relationship between subject 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. Betsey Stevenson The Wharton School University of Pennsylvania 1454 Steinberg Dietrich Hall 3620 Locust Walk Philadelphia, PA 19104 and NBER [email protected] Justin Wolfers Business and Public Policy Department Wharton School, University of Pennsylvania 3620 Locust Walk Room 1456 Steinberg-Deitrich Hall Philadelphia, PA 19104-6372 and NBER [email protected]