The Easterlin Paradox Explained: Why Getting Richer Doesn't Always Make Us Happier

There is a sentence in my book that many readers find hard to believe. GDP, the number politicians lean on most, can be pushed up by fires, floods and even wars. It seems unbelievable, I wrote, and yet it's true. Such a measure says little about how people live.

My doctoral research was about exactly this: how to measure a society's progress through its citizens' quality of life. And in my field, almost every such conversation begins with Richard Easterlin. In my book Courage on the Journey of Happiness, the economics of happiness gets only a few pages, because the book is about your life, not national statistics. Yet his question is personal too: what is all this growth for?

What is the Easterlin paradox?

In 1974 the economist Richard Easterlin looked at thirty surveys from nineteen countries, taken between 1946 and 1970, in which people said how happy they were¹. In every single survey, the highest income group was happier on average than the lowest. Between countries, however, the link was uncertain, and in the United States rising income since 1946 had not been systematically accompanied by greater happiness.

That contradiction is the paradox, sometimes called the happiness–income paradox. In 2010 Easterlin and colleagues summed it up in three parts²:

• at one moment, people and countries with higher incomes tend to be happier
• in the short run, happiness and income move together: happiness tends to fall in recessions and rise when the economy expands
• in the long run, usually ten years or more, happiness does not rise as a country's income grows

Their data included developing and former socialist countries. In China, South Korea and Chile, income per person doubled in less than ten, thirteen and eighteen years, without a statistically significant rise in life satisfaction.

Why doesn't economic growth make us happier?

Easterlin's main answer is social comparison³. People with higher incomes are happier partly because they compare themselves with those who have less. When incomes rise across a whole country, the people we compare ourselves with get richer too, and the extra happiness from our own raise largely disappears. Adaptation adds to it: yesterday's luxury soon feels normal.

A third explanation is about who the growth reaches. Researchers Shigehiro Oishi and Selin Kesebir studied two datasets covering 34 countries: when economic growth came together with growing income inequality, it was not associated with rising happiness⁴. An international commission of economists put it plainly: if inequality grows enough, most people can be worse off even while average income rises⁵.

What money does within one person's life, including the famous $75,000 study, is a different question, covered in can money buy happiness.

Is the Easterlin paradox true?

Not every economist agrees, and a fair explanation must say so. In 2008 Betsey Stevenson and Justin Wolfers analysed large datasets spanning decades and found a clear positive link between GDP per person and average well-being across countries, with no evidence of a satiation point beyond which richer countries stop gaining⁶. Within countries, too, they found growth associated with rising happiness, and concluded that absolute income matters more, and comparison less, than Easterlin suggests.

The same year, Angus Deaton analysed Gallup World Poll data from 132 countries. Each doubling of national income went with almost one more point of life satisfaction on a 0–10 scale, in rich and poor countries alike⁷. Yet among countries at the same income level, faster growth went with lower life satisfaction, not higher.

Easterlin's reply is that critics confuse the snapshot with the film: a positive link at one moment, or during the ups and downs of the business cycle, says nothing about the long-term trend³. Both sides use serious data; they mostly disagree about time spans and which countries and surveys to count.

What happiness research says about the Easterlin paradox today

As an economist who has spent many years studying happiness, I find the newest work most helpful: it asks not only whether the paradox holds, but where. Ekaterina Oparina, Andrew Clark and Richard Layard used Gallup data from over 150 countries, 2009–2019⁸. For individuals, doubling income went with about 0.3 more points out of 10. For countries, the picture split. In rich countries, once health and social support were taken into account, income no longer had a significant independent effect, either between countries or over time. In low-income countries, higher income clearly raised happiness; middle-income countries fell in between. It is a working paper: the latest word, not the last.

My honest summary: the paradox holds best in rich countries over long periods, and least in poor ones, where growth that reaches people still matters a great deal. Everywhere, happiness travels with more than income. The World Happiness Report, which asks people to rate their lives from 0 to 10, finds that six factors explain more than three quarters of the differences between countries; income is one, others include having someone to count on and freedom to make life choices⁹.

GDP and happiness: a flawed compass

This is why I wrote so bluntly about GDP. It measures current production, not how people live. When a flood destroys homes, GDP is not reduced by what was lost, while the rebuilding counts as new production¹⁰. In 2008 French president Nicolas Sarkozy asked Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to set up a commission on the problem. Their own example was gentler: traffic jams can increase GDP through extra fuel, but not the quality of life. GDP, they concluded, is “not wrong as such, but wrongly used”.

As an economic measure, GDP is extremely flawed and often misused.

In the book I linked this narrowly material view of progress with economic crises, global warming and the destruction of natural resources. Robert F. Kennedy said it most memorably in 1968: gross national product, GDP's close relative, “measures everything in short, except that which makes life worthwhile”¹¹.

Beyond GDP: measuring what matters

“Beyond GDP” is no longer a fringe idea. The Stiglitz–Sen–Fitoussi report, presented in Paris in September 2009, argued that it was time to shift emphasis from measuring production to measuring people's well-being, and recommended that statistical offices ask people how they evaluate their lives.

In 2019 New Zealand presented its first Wellbeing Budget. Growth is important, the government wrote, but alone it does not guarantee better living standards; the budget set five priorities, among them mental well-being and child well-being, and measured progress on more indicators than GDP¹². Easterlin draws the same conclusion: policy should focus more on people's pressing concerns, such as health and family life, than on ever more material goods².

As a scientist, I see greater well-being as the ultimate goal of economics. Every town and company faces the same choice: measure only output, or also how people live. Helping cities and companies measure quality of life and act on it is part of my work with organisations.

What the Easterlin paradox means for you: seven gentle steps

You can't change national statistics this week, but you can change what you measure in your own life, because a person can fall into the same trap as a country: income and possessions grow, and life doesn't feel better.

1. Notice your “when” promises. “When I earn more”, “when we have the bigger house”. What do you expect to feel then, and could you have a little of it now?
2. Write your own dashboard. Choose four or five signs that your life is going well: time with people you love, rest, meaningful work, laughter, time outdoors. Check them as often as your bank balance.
3. Give yourself a small well-being budget. Like New Zealand, set priorities first, then give them time and money on purpose, not leftovers.
4. Invest in people. Research suggests that in rich countries much of what income seemed to do travels through health and social support. Call the friend you keep postponing.
5. Spot your own traffic jams. Things that count as progress on paper but lower the quality of your days: the longer commute for a better salary, the project that eats your evenings.
6. Do more of what you love. GDP counts work you love and work you dread in exactly the same way. Your life doesn't.
7. Ask what your town and workplace measure. Does anyone measure how people feel, not only output? Better measures start with a question.

More than fifty years on, economists still argue about the numbers, and that is how good science works. But Easterlin's question belongs to each of us. To explore your own answer, how to be happy is a good place to start. And living by your own measures, with women who walk the same path, is the heart of my programme Permission for Life.