Money can buy happiness, but up to what point? And does working more make us miserable? And will you be happier if you start your own company? Here's what the research tells us...
Last week, I shared the OECD's brand new rankings of the happiest countries on earth. This week, let's pull back the lens and consider the most important lessons about well-being from the mountainous piles of economic research distilled by the New Economics Foundation's excellent review. All caveats about the messiness of research bias and the usefulness of self-reported happiness surveys apply.
1) Generally speaking, richer countries are happier countries (see above). But since many of these rich countries share other traits -- they're mostly democracies with strong property rights traditions, for example -- some studies suggest that it's our institutions that are making us happy, not just the wealth. More on that in a second.
2) Generally speaking, richer people are happier people. But young people and the elderly appear less influenced by having more money.
3) But money has diminishing returns -- like just about everything else. Satisfaction rises with income until about $75,000 (or perhaps as high as $120,000). After that, researchers have had trouble proving that more money makes that much of a difference. Other factors -- like marriage quality and health -- become more relatively important than money. It might be the case that richer people use their money to move to richer areas, where they no longer feel rich. Non-economists might chalk this up to the "keeping up with the Jones'" principle.
- 3a) The diminishing-returns principle is true for entire countries, too... The "Easterlin Paradox" suggests that once a developed country passes a threshold average income, more growth doesn't increase average reported happiness.
- 3b) ... but there might be exceptions -- or the whole theory might be wrong!. Betsey Stevenson and Justin Wolfers, disagreeing with Easterlin in a widely-read paper, have showed that some countries, such as Japan and Italy, have clearly rising levels of well-being alongside rising GDP.