Proposal

The purpose of this study will be to estimate how a person’s self-described happiness changes as their absolute income changes. For the sake of the paper, absolute income will refer to the dollar amount that an individual is paid. The study will look at the nominal GDP of a given country in 1998, then compare that with their life satisfaction score provided by the third wave World Values Survey (WVS) (Inglehart et al. 2003). The survey was administered to a sample population of 82 different countries from 1996-1998 and asked respondents to rate their life satisfaction on a scale of 1-10 (Inglehart et al. 2003). Other factors such as sex, marital status, employment, age, and health will also be factored into the paper.

Economists have formed a tangential relationship with the concept of happiness over the years. Foundational microeconomics holds that the goal of a reasonable actor is to maximize their utility or happiness. In the real world, the level of happiness in a society is one of the most important metrics in gauging that society’s functionality. Scholars such as R.B. Edgerton have defined good cultures as “those in which health and happiness flourish” (Edgerton 1992). Subjective well-being has also been “strongly linked to health and longevity in healthy populations” (Diener and Chan 2011). This shows that the general happiness of a population should be of utmost importance to their government. However, if absolute income can be shown to not be a large factor in determining the happiness of a population, this would prove to have far-reaching governmental implications. First it would require that less emphasis be put on GDP when attempting to gauge the well-being of the people.  It would also mean governments should err on the side of regulation when presented with a situation in which one must forgo maximum output (maximum income) in order to preserve things like the environment and worker safety standards.

Modern research on the relationship between income and happiness was kicked off by the seminal work of Easterlin (1974). The paper (discussed in greater detail below), attempted to find whether there was “evidence that economic growth was positively associated with social welfare,” (Easterlin 1974). One of the hypotheses put forth by the paper was that absolute income mattered very little to a person’s happiness when compared with relative income (Easterlin 1974). However, a large amount of future works would go on to challenge the extreme form of this hypothesis (Ball et al. 2007). This study will contribute to this ongoing debate by estimating the effect of increasing absolute income on a person’s happiness.

Literature Review

As stated above, Easterlin (1974) attempted to answer whether there is a relationship between income and happiness in a country’s population and whether there was a relationship between average income and average happiness. Using data from the United States, he concluded that, while happiness was positively correlated with income, average happiness responses seemed to not be affected by average income. This would mean that, despite a country routinely increasing its income per