Relative Income and Subjective Wellbeing: Intra-national and Inter-national Comparisons by Settlement and Country Type

It is now widely accepted that broad measures of wellbeing should be incorporated into policy-makers’ objective functions when making policy choices. There may, however, be a paradox in the relationship between GDP, income and subjective wellbeing that has an impact on reported life satisfaction:

• within countries, richer people are more satisfied with their lives than are poorer people;
• richer countries tend to be, on average, happier than poorer countries; however,
• over time, subjective wellbeing at the national level does not rise with income.

This is known as the Easterlin Paradox. Until Easterlin (1974), economists assumed that raising incomes across a country also raised subjective wellbeing. At its most extreme interpretation, the Easterlin Paradox implies that if each individual in society becomes richer by the same degree then no individual is any better off (in subjective wellbeing terms) than they were prior to their income increasing.

Much of the work on the Easterlin Paradox ignores three important aspects, including whether:

1. People also compare themselves to citizens in other countries;
2. There is a difference between residents in differently sized settlements within a country;
3. There is a difference between residents in immobile societies versus countries with higher degrees of mobility.

Our research incorporates each of these aspects and shows that an individual country that lifts their national per capita income relative to others also raises average life satisfaction.