Changing Patterns of Income and Happiness

08/01/2000
Summary of working paper 7487
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The happiness of women, despite gains in the job market and legislation aimed at reducing gender discrimination, has diminished greatly.

Does money buy happiness? Philosophers, psychiatrists, social commentators, and journalists have long pondered the question. Now economists David Blanchflower and Andrew Oswald weigh-in with their analysis in Well-Being Over Time in Britain and the USA (NBER Working Paper No. 7487). Their data source is the General Social Surveys of the United States from 1972 through 1992, a period of generally rising material living standards. The Survey shows that in the early 1970s, 34 percent of those interviewed described themselves as "very happy." Yet by the late 1990s, the figure had shrunk to 30 percent. The trend seems clear: American society may be wealthier measured in dollars and cents, but we are less happy.

Yet Blanchflower and Oswald reject such a simple conclusion. Instead, a closer examination of the data suggests that some groups in society have become happier while others have suffered an evident decline in their sense of well-being. For example, the happiness of American men has grown over the past three decades. But the happiness of women, despite gains in the job market and legislation aimed at reducing gender discrimination, has diminished greatly. Blacks are less happy than whites. Yet the happiness gap between the races is narrowing. Black men and women show an upward slope in their happiness (with black men happier than black women) while whites are less happy than before. Higher income is also associated with higher happiness, although not by as much as many economists might suppose. The details of the American survey differ from the British figures, but the outline and equations are essentially the same. Taken altogether, after the typical statistical and analytical caveats, their answer to the age-old question is, "Yes. Money does buy happiness."

The paper offers several intriguing calculations. For example, the biggest single depressant on reported happiness is the variable "separated from spouse," followed by "widowed." Being unemployed is similarly depressing. The authors calculate how much money it would take to compensate for a major emotional trauma. It would take about $100,000 extra per year to reimburse for the suffering of divorce or widowhood, and $60,000 a year to recompense men for the pain of unemployment. Put somewhat differently, a lasting marriage is worth $100,000 a year and a steady job $60,000 annually.

Blanchflower and Oswald's results suggest that happiness is U-shaped over the life cycle. We seem to hit bottom somewhere around the age of 40. Perhaps that is good news for the United States at least. The mammoth baby boom generation is aging, and as a society we may feel better off in coming decades.

-- Christopher Farrell