Keeping Up with the Joneses

The Economist reviews the latest research on the correlation between income and happiness and finds that relative income is a better predictor of happiness than absolute income:

A second and more important reason why more money does not automatically make everybody happier is that people tend to compare their lot with that of others. In one striking example, students at Harvard University were asked whether they would prefer (a) $50,000 a year while others got half that or (b) $100,000 a year while others got twice as much. A majority chose (a). They were happy with less, as long as they were better off than others. Other studies confirm that people are often more concerned about their income relative to others' than about their absolute income. Pleasure at your own pay rise can vanish when you learn that a colleague has been given a much bigger one. The implication of all this is that people's efforts to make themselves happier by working harder in order to earn and spend more are partly self-defeating: they may make more money, but because others do too, they do not get much happier. The unhappiness that one person's extra income can cause to others, argues Lord Layard, is a form of pollution.

Worse still, working harder in order to be able to afford more material goods could even end up making people unhappier if they do not have enough spare time. Although people value their income in relation to that of others, this does not seem to be true of their leisure time. The same Harvard students were also asked to choose between (c) two weeks' holiday, while others have only one week and (d) four weeks' holiday while others get eight. This time a clear majority preferred (d). In other words, people's rivalry over income does not extend to leisure. The result of this, suggests Lord Layard, is that developed societies may tend to work too hard in order to consume more material goods, and so consume too little leisure.

If people's rivalry over income does not extend to leisure how is that the Europeans find such consolation over having fallen behind the U.S. in per capita GDP -- average GDP per head in the European Union, measured at purchasing-power parity, is only three-quarters of that in the U.S. -- by pointing out that they enjoy a good deal more leisure time than Americans? Perhaps what holds for individuals does not hold true for aggregations of people (i.e., nations or supranational entities such as the EU). Or, as seems more likely, people find consolation wherever they can.

The key, it seems to me, is that the American economic system allows individuals greater flexibility to choose their own income-leisure trade-off. The French, by comparison, are restricted by law to a far greater degree in how much they can work and they have a much higher structural rate of unemployment.

Comments

[Crawford Kilian]

The gap between richest and poorest in a society tends to correlate with morbidity and mortality rates: the wider the income gap, the more people get sick and die earlier, at least at the bottom end of the scale.

The Whitehall Studies, for example, have been tracking British civil servants since the 1960s, and have found that senior civil servants have something a quarter the rate of fatal heart disease experienced by civil servants at the bottom of the pay scale...despite equal access to health care.

Other British and American studies have confirmed that "wealthier is healthier"—every socioeconomic class tends to be healthier than the one below it and sicker than the one above it.

This may also help to explain why the US, with by far the best medical system in the world, is about #27 in life expectancy—behind not only countries like Canada and Japan, but even behind Cuba. These countries all tend to have relatively narrow gaps between richest and poorest, though the gap in Canada has widened since the advent of free trade in the late 1980s.

The actual cause of reduced life expectancy is still under debate, with some scholars like Richard G. Wilkinson, in the UK, suggesting "psychosocial stress" that not only reduces immunity but triggers self-destructive behaviour like smoking, drinking, violence, etc. The jury is still out on that.

The income gap/mortality issue has been a very big one in the public-health field, but it hasn't really registered with the public itself. Some public-health scholars like Dennis Raphael, here in Canada, and Steven Bezruchka at the U of Washington in Seattle, are trying to alert the public to the issue. But it's going to be a long, slow process.

[Todd Bass]

Yes, I'm familiar with Wilkinson's work on income inequality / socioeconomic status and health. It's fascinating, though I think the Wilkinsonians overstate their case to a degree and don't yet fully understand the mechanism(s) involved. For absolute poverty also affects health status even in countries with universal health insurance such as the UK: http://news.bbc.co.uk/2/hi/health/1323362.stm