The increasing cost of happiness

R.W.Morris^1,2, N.Kettlewell^2,3,4 & N.Glozier^1,5

 

1. Central Clinical School, Faculty of Medicine and Health, University of Sydney, NSW, Australia
2. ARC Centre of Excellence for Children and Families over the Life Course
3. Economic Discipline Group, University of Technology Sydney, NSW, Australia
4. Institute of Labor Economics (IZA), Bonn, Germany

 

Corresponding author:

Professor Nick Glozier  
Faculty of Medicine and Health,   
University of Sydney,  
NSW 2050,  
Australia  
email: nick.glozier@sydney.edu.au

 

Draft	27 October, 2021
Words	4688
Tables	0
Figures	4

   

keywords: Subjective wellbeing, household income, HILDA

 

Abstract

A fundamental question for society is how much happiness does a dollar buy? The accepted view among economists and psychologists is that income has diminishing marginal returns on happiness: money and happiness increase together up to a point after which there is relatively little further gain. In this paper we estimate the relationship between income and subjective wellbeing over a 19-year period focusing on where the greatest change in the marginal return on income occurs and whether this change point has shifted over time. We formally test for the presence of a change point as well temporal changes in the relationship between income and affective wellbeing (happiness), and income and cognitive wellbeing (life satisfaction), using household economic data from Australia between 2001-2019. The results indicate that the change point between affective wellbeing and income has increased over those 19 years faster than inflation (i.e., cost of living). This suggests that inequalities in income may be driving increasing inequities in happiness between the rich and the poor, with implications for health and recent government policy-goals to monitor and improve wellbeing.

Additional information

This paper uses unit record data from Household, Income and Labour Dynamics in Australia Survey HILDA conducted by the Australian Government Department of Social Services (DSS). The findings and views reported in this paper, however, are those of the author[s] and should not be attributed to the Australian Government, DSS, or any of DSS’ contractors or partners. All code and scripts used in the analysis are available at https://github.com/datarichard/The-increasing-cost-of-happiness

An online version of this paper is available here

Supplementary information is also available online.