Earn More, Live Less:
Modern Economic Alternatives

Ashish Bharadwaj
Praveen Nimrod Ezekiel
M.Sc. Economics (I) 2006-07
Ma...
of income. There may be many different reasons why higher income does not necessarily
imply higher happiness. For instance...
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Earn More, Live Less: Modern Economic Alternatives

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This paper intends to justify the argument that income is not the only factor affecting happiness and well-being. By focusing only on income, we ignore the other important components of happiness and well-being. With the help of data and empirical findings, this paper would bring forth the argument that; there has been only a very modest upward trend in average life-satisfaction scores in developed nations, whereas average income has grown substantially. At a given point in time, higher income might be positively associated with people’s happiness, yet over the life cycle it has been shown that happiness stays more or less unchanged. Undoubtedly, people with higher income have more opportunities to achieve what they desire as they can buy more material goods and services. In other words, utility increases with income, but the question posed here is that does this higher level of income translate into greater happiness?

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Earn More, Live Less: Modern Economic Alternatives

  1. 1. Earn More, Live Less: Modern Economic Alternatives Ashish Bharadwaj Praveen Nimrod Ezekiel M.Sc. Economics (I) 2006-07 Madras School of Economics Abstract This paper intends to justify the argument that income is not the only factor affecting happiness and well-being. By focusing only on income, we ignore the other important components of happiness and well-being. Considering that there is a clear-cut tradeoff between work and leisure, by working more in order to earn more, people usually tend to ignore the welfare benefits of leisure. Numerous studies have established that satisfaction is weakly correlated with income. With the help of data and empirical findings, this paper would bring forth the argument that; there has been only a very modest upward trend in average life-satisfaction scores in developed nations, whereas average income has grown substantially. At a given point in time, higher income might be positively associated with people’s happiness, yet over the life cycle it has been shown that happiness stays more or less unchanged. Undoubtedly, people with higher income have more opportunities to achieve what they desire as they can buy more material goods and services. In other words, utility increases with income, but the question posed here is that does this higher level of income translate into greater happiness? Various economic and non-economic factors exert strong influences on well-being beyond the direct and indirect consequences
  2. 2. of income. There may be many different reasons why higher income does not necessarily imply higher happiness. For instance, individuals tend to compare their relative position with that of other individuals in the society. It is not the absolute level of income that matters but rather one’s position relative to other individuals. Additional material goods and services initially provide extra utility or pleasure but it is usually only transitory. Data also suggests that there is diminishing marginal utility with absolute income so that additional income does not necessarily leads to increased happiness. Thus in this paper, we intend to show what wisdom already suggests: “(T)he things that make one happy – friends, family, achievement, health – depend largely on virtue and luck; they are not available on a willingness-to-pay basis.” .

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