Glenn Firebaugh Pennsylvania State University
Prior research shows that richer people tend to be happier, at least in the West. How large is the income effect, and does it vary from country to country? The PI will address these questions using data from the World Values Survey (WVS), the largest systematic attempt to date that documents values, attitudes, and beliefs around the world. The WVS includes a mix of rich countries and poor countries that together are home to a large majority of the world's people. This study will combine data from 55 rich and poor countries, comprising over 200,000 individuals in 161 income contexts, thus providing a rich set of data for testing hypotheses. The research addresses four hypotheses. The first hypothesis is that the effect of income on satisfaction depends on the income of one's fellow citizens as well as on one's own income. This is the relative income hypothesis: For a given level of income, individuals in poorer countries will tend to be more satisfied than individuals in richer countries. The second hypothesis is that the absolute level of one's income also matters for one's life satisfaction. Hence our second hypothesis states that for two individuals with the same relative income, the individual in the richer country will tend to be more satisfied. The individual in the richer country will tend to be more satisfied because they will be richer than her counterpart with the same relative income in a poorer country -- an absolute income effect. The third hypothesis is that relative income effects dominate in rich countries. After a certain income threshold, what counts for life satisfaction is not how much an individual can buy, but whether they can buy more than others can. If so, then rising incomes in rich countries mean that individuals must earn more and more just to maintain a constant level of satisfaction-a phenomenon that has been called the "hedonic treadmill." The hedonic treadmill applies only to rich countries, however. For the majority of the world's people who live in poor countries, it continues to be the case that what counts is what one can buy. Thus the fourth hypothesis: In poor countries the effect of income on satisfaction is largely an absolute income effect.
Broader Impacts
The hypotheses are timely and important because recent research indicates that the link between income and subjective well-being is not as tight as once believed. There is some evidence that in the West in particular rising incomes have not led to happier or more satisfied people. A significant contribution of this study is to shed more light on the question of whether the West in fact fits the hedonic treadmill model. To this point the hedonic treadmill model rests largely on the observation that average happiness has failed to increase in some rich countries despite significant income gains over the past half century. But there are other possible explanations for the flat trend in satisfaction, and this research is designed to test the relative income hypothesis more directly. By contributing to our understanding of the connection between income and life satisfaction at both the individual level and the societal level, the proposed research has potentially important implications for individuals and societies in the 21st century.
