Are the Rich happier than the Poor?

Continuing on the theme of the relationship between income and happiness (previous posts: 1, 2 , and 3), let me show you what Betsey Stevenson and I learned when comparing the happiness of rich and poor people.

Let’s begin with the most recent data from the 2006 General Social Survey, which asked: “Taken all together, how would you say things are these days?”

It sure seems like the rich are more likely to be “very happy” than the rest of us. Is this a big effect? In 2005, Robert Frank argued:

When we plot average happiness versus income for clusters of people in a given country at a given time, we see that rich people are in fact much happier than poor people.

It’s actually an astonishingly large difference. There’s no one single change you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.

Let’s go ahead and draw the plot that Frank envisions, using all of the data from the 2006 survey:

Here’s the key point:

By comparing rich and poor people, we estimate a happiness-income gradient that has a slope that is similar to what we saw when we compared rich and poor countries.

OK, that’s the United States, what about other countries? We estimated the well-being-income gradient for over 100 countries in the Gallup World Poll. Rather than show you dozens of separate coefficients, we’ll let a picture tell the story (and let me admit, I love this graph).

The arrows in this figure show the slope of the well-being-income gradient for each country, while the dots show the average level of happiness and G.D.P. for each country. The dashed line shows the best fit through these dots.

The fact that the arrows all have a similar slope to the dashed line suggests that comparisons of rich and poor people yield very similar conclusions to comparisons of rich and poor countries. In the full paper, we document that this finding holds for many different datasets.

Why do we emphasize this finding?

Because it stands directly at odds with a key claim of Easterlin (see p.106 to 107):

… the happiness difference between rich and poor countries that one might expect on the basis of the within-country differences by economic status are not borne out by the international data.

Are rich countries happier than poor countries?

Following yesterday’s post, I promised to describe the new evidence that rich countries are happier than poor countries.

The simplest way to make this point is with a chart, using data from the Gallup World Poll. This amazing new dataset contains detailed data on subjective well-being for 132 countries in 2006. (Amazingly, Gallup plans to continue to field this poll every year.)

The key question asks:

“Please imagine a ladder/mountain with steps numbered from 0 at the bottom to 10 at the top. Suppose we say that the top of the ladder/mountain represents the best possible life for you and the bottom of the ladder/mountain represents the worst possible life for you. If the top step is 10 and the bottom step is 0, on which step of the ladder/mountain do you feel you personally stand at the present time?”

The following chart simply takes the average levels of satisfaction on this 0-10 scale, and plots it against G.D.P. per capita (note the log scale):

There is an incredibly high correlation between average levels of happiness and average incomes — greater than 0.8. Angus Deaton actually beat us to this finding, and his analysis of these data is worth a close reading, (here).

There’s another striking finding in this graph: the relationship between happiness and log income appears nearly linear.

Thus, a 10 percent rise in income in the United States appears to increase happiness by about as much as a 10 perecent rise in income in Burundi.

Let me add two further comments here:

1. This is an interesting finding, because many had argued that there is a “satiation point” beyond which you just don’t benefit from greater income. Indeed, Richard Layard has argued that “there is no evidence that richer countries are happier than poorer ones — so long as we confine ourselves to countries with incomes over $15,000 per head.”

In fact, the slope appears to get steeper above $15,000!

2. Even so, it is worth noting that a 10 percent rise in income in Burundi requires one-sixtieth as much income as a 10 percent rise in income in the U.S. Thus, even if the slope is three times as steep for rich countries as poor countries (as we estimate), this still means than an extra $100 has about a twenty-times-greater effect on happiness in Burundi than it would in the United States.

Comparisons like this make you think that foreign aid may not be such a bad idea.

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