Economic development happiness link true up to a point

The economic development happiness link, i.e. as a country develops economically its people become happier, is true until their GDP per capita reaches $36,000. After that point happiness levels off and even starts to dip as people’s accelerating aspirations lead to disappointment.

The economic development happiness link has been a controversial theme for many years. Studies have shown that people in poorer countries smile more times each day than citizens of the world’s leading economies.

However, a United Nations study found that the happiest countries in the world are (in order) Denmark, Norway, Switzerland, the Netherlands and Sweden – all rich countries.

In a new study, published in the journal PLOS ONE, Aldo Rustichini, from University of Minnesota, USA, and Eugenio Proto in the Centre for Competitive Advantage in the Global Economy at the University of Warwick, England, found as expected that in the poorest nations life satisfaction rose as their national economies grew and people were able to meet their basic requirements.

The authors explain that the economic development happiness link is of great interest to politicians, who focus intensely on trying to improve their countries’ economies.

Economic development is not just about economic growth. It also includes citizens’ better health and well-being, access to decent housing, academic levels, and access to services.

Life satisfaction levels peak at $36,000 GDP per capita

The researchers found that as soon as income per capita reaches $36,000 (adjusted for Purchasing Power Parity), life satisfaction levels appear to reach a peak, after which they actually start to drop as national wealth continues to grow.

Major economies with a GDP per capita of at least $36,000 include the US, UK, Germany, France, Japan, and Canada.

Dr Proto said:

“Whether wealth can buy a country’s happiness is a major question for governments. Many policy-makers, including in the UK, are interested in official measures of national well-being.”

“Our new analysis has one very surprising finding which has not been reported before – that life satisfaction appears to dip beyond a certain level of wealth.”

The study found that diminishing levels of happiness as a country goes beyond the $36k barrier is due to changes in the levels of people’s aspirations. As rich countries get wealthier aspiration levels accelerate.

Among the rich nations, basic needs are mostly met, and people spend more time looking around and a sense of “keeping up with the Joneses” grows.

Economic development happiness hampered by the aspiration gap

As rich countries become richer an aspiration gap develops – what people aspire to grows faster than their rising incomes. As the aspiration gap grows, life satisfaction levels dip.

Dr. Proto explains:

“In other words, what we aspire to becomes a moving target and one which moves away faster in the richest countries, causing the dip in happiness we see in our analysis.”

The researchers reported that people in nations whose GDP per capita were less than $6,700 had a 12% lower likelihood of reporting the highest level of life satisfaction compared to citizens in countries with GDP per capita of about $18,000.

However, on reaching about $24,000 GDP per capita, economic development happiness becomes less obvious. From this level to the level of super-super rich countries (GDP per capita of $54,000), there is only a 2% difference in the probability of citizens reporting the highest level of life satisfaction.

The study backs up the Easterlin Paradox – that the association between life satisfaction and GDP is pretty much flat in the wealthy nations.

However, Rustichini’s and Potro’s study differs from previous ones which found that life satisfaction continued to rise as rich countries became wealthier, albeit at much slower rates. In this latest study, the researchers reported a small drop from $36,000 GDP per capita upwards.