Two people in a library smiling at each other.

Is income inequality making us unhappy?

For almost half a century, the Easterlin Paradox (that economic growth makes nations happier, but only up to a certain income) has been an important concept in happiness economics. So too, is the concept that non-economic factors have a direct effect on the happiness of nations. While the United States (US) has one of the highest GDPs per capita, for example, several countries appear to be happier. Other advanced economies like the United Kingdom and Sweden have continued to become happier as they grow richer, but the US bottoms out on happiness.

A new paper suggests that the discrepancy can be explained by the level of income inequality. Examining data for 34 nations, the study found that inequality is a strong “moderating factor” in whether nations become happier during economic growth. The researchers found that when economic growth is concentrated in a small segment of the population, the Easterlin Paradox is more likely to emerge. As a result, economic growth is not associated with an increase in life satisfaction.

The researchers looked at the World Database of Happiness, (a collection of self-reported surveys of happiness) and a sample from 18 Latin American countries with less developed economies. The two main findings from this data were that people with the lowest incomes do not benefit when economic growth surges, and that income inequality makes people more envious, undermining their happiness. The paper doesn’t discount the general idea that GDP is a measure of national welfare, but does raise some interesting points for those trying to build happier communities.

This post first appeared in TINAN 70. Subscribe to TINAN for the latest economic development news and resources.