Wealth makes us happier, but only if you share it

Mar 02, 2016, 09:41 ET from London Business School

LONDON, March 2, 2016 /PRNewswire/ -- A narrow focus on GDP is leading to myopic economic policy, a London Business School expert warns. New research by Selin Kesebir, Assistant Professor of Organisational Behaviour, London Business School, and Shigehiro Oishi, Professor of Psychology, University of Virginia, finds that a country's economic growth does not make its citizens happier if the gains are unevenly spread.

Dr Kesebir explains: "Our research provides an explanation for one of the most puzzling findings in the social sciences over the past half century: an increase in national wealth not always increases happiness. This is the famous Easterlin paradox. Countries with growing income inequality often fail to increase average happiness, even if they succeed in boosting GDP."

The findings come at a time when income inequality is growing globally. A recent Oxfam report ('An Economy for The 1%') shows the world's wealth is becoming ever more concentrated, with 62 billionaires now holding as much wealth as the world's poorest 3.5 billion. The US is seeing widening income inequality and happiness has stagnated since the 70s.

"When growing wealth is more evenly distributed across income brackets, we often observe an increase in life satisfaction," explains Dr Kesebir. "For example, in Scandinavia, where income inequality is low, happiness increases with increasing GDP. In many developing Latin American countries however, where wealth is still very much concentrated among a small portion of elites, increasing wealth does not come with more happiness."

Dr Kesebir and Professor Oishi examined the relationship between GDP per capita and happiness in two different data sets covering 34 nations in total. These sets consisted of 16 developed nations and 18 developing Latin American nations.

They found economic growth had a less positive and more negative effect on happiness as income inequality increased. The study has important implications for economic policy in both developed and emerging nations.

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SOURCE London Business School