Relative Income, Subjective Wellbeing and the Easterlin Paradox: Intra- and Inter-national Comparisons

We extend the Easterlin Paradox (EP) literature in two key respects. First, we test whether income comparisons matter for subjective wellbeing both when own incomes are compared with others within the country (intra-national) and with incomes across countries (inter-national). Second, we test whether these effects differ by settlement-type (rural through to large cities) and by country-type (developed and transitional). We confirm the intra-national EP prediction that subjective wellbeing is unchanged by an equi-proportionate rise in intra-country incomes across all developed country settlement-types. This is also the case for rural areas in transitional countries but not for larger settlements in those countries. Inter-national income comparisons are important for people's subjective wellbeing across all country-settlement-types. Policy-makers must therefore consider their citizens'incomes in an international context and cannot restrict attention solely to the intra-national income distribution.

This book presents a panoramic view of the implications from Richard Easterlin’s groundbreaking work on happiness and economics. Contributions in the book show the relevance of the Easterlin Paradox to main areas, such as the relationship between income and happiness, the relationship between economic growth and well-being, conceptions of progress and development, design and evaluation of policies for well-being, and the use of happiness research to address welfare economics issues.  This book is unique in the sense that it gathers contributions from senior and top researchers in the economics of happiness, whom have played a central role in the consolidation of happiness economics, as well as promising young scholars, showing the current dynamism and consolidation of happiness economics.

Citation

Grimes A, Reinhardt M. 2019. “Relative Income, Subjective Wellbeing and the Easterlin Paradox: Intra- and Inter-national Comparisons” in: Rojas M. (ed.) The Economics of Happiness: How the Easterlin Paradox Transformed our Understanding of Well-Being and Progress. Switzerland: Springer, 85-106.