The relationship between income and subjective well ... - Springer Link

ED D I E N E R , ED S A N D V I K , L A R R Y S E I D L I T Z A N D MARISSA DIENER

THE

RELATIONSHIP AND

BETWEEN

SUBJECTIVE

RELATIVE

INCOME

WELL-BEING:

OR ABSOLUTE?

(Accepted 28 February, 1992) ABSTRACT. Although it appears that income and subjective weli-bemg correlate in within-country studies (Diener, 1984), a debate has focused on whether this relationship is relative (Easterlin, 1974) or absolute (Veenhoven, 1988, 199!). The absolute argument advanced by Veenhoven states that income helps individuals meet certain universal needs and therefore that income, at least at lower levels, is a cause of subjective well-being. The relativity argument is based on the idea that the impact of income or other resources depends on changeable standards such as those derived from expectancies, habituation levels, and social comparisons. Two studies wNch empirically examine these positions are presented: one based on 18 032 college studies in 39 countries, and one based on 10 year longitudinal data in a probability sample of 4 942 American adults. Modest but significant correlations were found in ~he U.S. beN, een income and well-being, but the cross-country correlations were larger. No evidence for the influence of relative standards on income was found: (1) Income change did not produce effects beyond the effect of income level per se, (2) African-Americans and the poorly educated did not derive greater happiness from specific levels of income, (3) Income produced the same levels of happiness in poorer and richer areas of the U.S., and (4) Affluence correlated with subjective well-being both across countries and within the U.S. Income appeared to produce lesser increases in subjective wen-being at higher income levels in the U.S., but this pattern was not evident across countries. Conceptual and empirical questions about the universN needs position are noted. Suggestions for further explorations of the relativistic position are offered.

A large n u m b e r o f studies h a v e f o u n d a p o s i t i v e c o r r e l a t i o n b e t w e e n a~l i n d i v i d u a r s i n c o m e a n d his o r h e r subjective w e l l - b e i n g (see D i e n e r , 1984; D i e n e r et al., 1985; E a s t e r l i n , 1974). B e c a u s e this c o v a r i a t i o n has b e e n r e p l i c a b l e , t h e c a u s e of this r e l a t i o n has b e c o m e the focus of d e b a t e . D o e s i n c o m e relate to subjective w e l l - b e i n g b e c a u s e it aids i n d i v i d u a l s in m e e t i n g u n i v e r s a l h u m a n n e e d s such as g o o d health, nutrition, a n d c o m f o r t a b l e h o u s i n g ? O r d o f i n a n c e s c o r r e l a t e with weltb e i n g within c o u n t r i e s b e c a u s e t h e y a r e a v a l u e d r e s o u r c e in m a n y cultures, a n d p e o p l e m a k e e v a l u a t i v e j u d g m e n t s o f t h e m s e l v e s c o m p a r e d to o t h e r s a r o u n d t h e m o n this r e s o u r c e ? A c c o r d i n g to t h e l a t t e r Sociallndicators Research 28: 195--223, 1993. © 1993 KluwerAcadernic Publishers. Printed in the Netherlands.

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ED DIENER E T A L .

argument, the relative-standards position, happiness and income are correlated within countries because wealthier people are more likely to exceed some variable standard for the good life. The standard is mercurial in that it depends on changeable cultural and social factors, not on invariant needs. Thus, according to the relative standards approach, people with comparable income (and presumably, the same level of satisfaction of innate needs), may be happy or unhappy depending on their past income or the wealth of those around them. The theoretical debate over income can in fact be generalized to any valued resource: does happiness rest on the fulfillment of certain basic and invariant human needs, or does it depend on changeable standards which vary over time and culture? Easterlin (1974) noted several findings in advancing the relativity argument. First, he commented that the differences in subjective wellbeing between rich and poor countries were small and inconsistent. Second, he pointed out that from 1945 to 1970, subjective well-being in the United States did not change, even though real income (after taxes and inflation) had doubled. Third, Easterlin noted that in all the within-country studies he reviewed, there was a positive correlation between reported income and happiness levels. This set of findings led him to posit what has been labelled the "relativity" hypothesis. As evidenced by the longitudinal U.S. data, Easterlin concluded that higher income for a country has tittle effect on average happiness because people within a country rely on others around them as a standard of comparison against which to evaluate their wealth. As the wealth of a nation increases, so does the social comparison standard of others' finances, with no net increase in happiness for the citizens of that state. Easterlin also suggested that the ubiquitous within-country correlation between wealth and subjective well-being is based on social comparison. People develop a standard of desirable income based on what others around them possess; if they are better off than this standard, they tend to be happier, and if they are worse off, they tend to be less happy. Thus, Easterlin hypothesized that movable standards influence happiness -- for example, standards related to the positions of others. Other possible changeable standards might be based on one's adaptation level 03rickman et al., 1976; Brickman and Campbell, 1971) or one's expectancies. Diener (1984) labelled these relative approaches

INCOME AND WELL-BEING

I97

"judgment theories" because they suggest that happiness depends on cognitive judgments people make about what exists in their lives versus some standard of comparison, a standard which can vary both across people and across time for a single individual. Veenhoven (1988, 1991) recently issued a rejoinder to the Easterlin hypothesis. He suggested that income helps people meet innate, universal needs and, therefore, that the relation between finances and happiness is not based on changeable standards such as social comparison, expectancies, or adaptation. Because those with greater income are more likely to be able to meet their inborn needs, for example for food, safety, health, and comfortable housing, they are prone to have greater subjective well-being, regardless of social comparison and so forth. That both lower income and loss of income have sometimes been related to psychopathology (Horwitz, 1984) migiat suggest that the income-happiness relation is based on the fulfillment of universal needs. Veenhoven also hypothesized that above some level of income, there was likely to be a diminishing influence of finances on happiness because basic needs would no longer be an issue. Thus, he posited a curvilinear relation between happiness and wealth in which earnings would have less effect as one rises up the absolute scale of income. In reviewing Easterlin's approach, Veenhoven issued several criticisms. For example, he noted that the appearance of small happiness differences between rich and poor countries was due to the way Easterlin presented the data. When Veenhoven calculated the covariation between income and happiness across countries or regions of the world, he found strong correlations of 0.51, 0.59, and 0.84 across several different data sets. This led him to the conclusion that poor countries do tend to be less happy on the average. Veenhoven noted, in addition, that above a moderate level of income there appeared to be a leveling off of happiness. This pointed to the idea that basic human needs may be at the heart of the income-happiness relation because above a moderate level of wealth, increases in income may not be related to the fulfiliment of inborn needs. Furthermore, Veenhoven noted that longitudinal work in Europe and Brazil showed that happiness did rise with income, in contrast to the findings in the relatively affluent U.S. of 1945. In addition, Veenhoven (1991) found that there was a - 0 . 3 5 correlation across countries between income and the

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ETAL.

covariation between income and happiness. This too led him to the idea that above a certain level, income will not increase human happiness because it no longer serves to meet basic needs. There are limitations in the data on which the debate has thus far been based. For example, the countries used in cross-country comparisons have tended to be homogenous and few in number. For instance, Easterlin (1974) describes studies of 14 countries by Cantril (1965) and nine countries by Gallup. Clearly, correlations based on such small sample sizes are extremely unreliable. Even worse, deriving nonlinear trends from data with the large standard deviations and small sample sizes of these data sets is perilous. Inglehart and Rabier (1986) studied 19 countries, but 17 of these were European, and the other two were the U.S.A. and Japan. Therefore, their study, although including a somewhat larger sample, was based on highly industrialized and Westernized societies. Thus, the first goal of the present paper is to examine cross-country data on income and happiness based on a larger, more heterogeneous number of countries. In the present article, we examine across 39 diverse countries the correlation between income (GNP per person) and happiness, life satisfaction, and domain satisfactions. The questions addressed are whether income correlates with happiness across countries, and whether this relation is curvifinear. Answers to these questions will shed light on both the relativity and inborn needs positions. A second limitation in earlier studies has been that although data have been occasionally gathered over time, the data rarely have been collected on the same respondents. Furthermore, differences across studies in the subject sampling methods and in the well-being scales used have complicated a straightforward interpretation of the results. Thus, there have been few truly longitudinal data on which to base conclusions. In the present paper, a large, national probability sample from the U.S. is examined at two time points over a nine year interval. This data set allows a test of social comparison effects on income and happiness. People with a specific level of income who live in richer versus poorer geographical areas can be compared to one another. If relative-standards theory is correct, people with a specific income ought to have a higher subjective well-being ff they live in a poorer area because they


199

are more likely to exceed the comparison standard set by others. According to Festinger's social comparison theory (1954), people are most likely to compare themselves to others who are proximal and similar. Therefore, a specific level of income in a poor area ought to make people happier than the same level of income in a rich area° From these longitudinal data it is possible to determine if changes in income lead to increases in happiness beyond those predicted by level of income per se. If adaptation theory is correct, it should be changes in income instead of income level itself that produces levels of well-being: increases will produce high well-being and decreases should produce tow well-being. If change in income does not add anything in predicting happiness beyond the effects of income level, there would be little support for an adaptation/habituation effect and increased support for a need-fialfillment interpretation. Furthermore, because of the huge range of incomes in the U.S., the curvilinear effect posited by Veenhoven can be examined with greater reliability. Finally, the large size of the U.S. national sample allows an examination of expectancy effects in terms of income and subjective well-being. Specifically, groups with presumably lower expectancies due to their past and present experiences (African-Americans and the less educated) can be compared with other groups in terms of the happinessincome relation. Because the sample is quite large, we can determine whether individuals in disadvantaged groups derive greater happiness from particular levels of income. Because these groups have historically earned less income in the U.S. and this fact is widely known, relativity theory predicts that on average they will have lower expectations for income and therefore derive greater satisfaction from specific levels of wealth. The two large data sets analyzed here allow one to make a number of specific predictions based on relativity theory and on universal needs theory. Although each of these predictions is probabilistic in that some factors are unmeasured and usually third variables can be posited, the results taken as a whole shed light on the validity of the relative standards versus universal needs approaches.

200

ED DIENER ETAL.

Relative Standards Approach Hypotheses 1. Social comparison based predictions: (A) Small or nonexistent differences in happiness between wealthier and less wealthy nations because there is likely to be little comparison between countries 0Easterlin, 1974) due to distance and dissimilarity, (B) Substantial differences in happiness between richer and poorer individuals within the same nation because the majority of comparisons occur within countries (co-nationals are more similar and proximal), (C) African-Americans happier than Caucasians at the same income level because they are likely to compare themselves to other African-Americans (because of perceived similarity and proximity) who are more likely to be poor, and (D) People of a specific income level living in poor areas of the U.S. will experience greater happiness than people of the same income living in rich areas because they are more likely to exceed the standard of comparison set by their neighbors.

2. Adaptation/habituation predictions: (A) A rise or decline in individual income will produce increases or decreases in happiness beyond the effects of income level per se. It should be noted, however, that if habituation to income occurs very rapidly, then only very recent changes in income will have an effect, and (B) The rate of economic growth will be positively related to happiness across countries because people in countries of rapid economic growth will not be habituated to their financial levels.

3. Expectancy theory predictions: (A) African-Americans will be happier than Caucasians at comparable income levels because they are likely, due to widely known historical circumstances, to expect less wealth, and (B) The less educated will experience greater happiness than the more

INCOME

AND WELL-BEING

201

educated at the same income levels because of the well-known association between higher education and higher income.

Need TheoryPredictions (A) Income will be related to happiness across levels of income, both between and within countries, up to the point where needs are met, and (13) Finances will be unrelated to happiness in countries and individuals once income has reached the point of meeting inborn needs. If many of the needs that income meets are, however, learned or related to indefinite status or curiosity needs, subjective well-being may be related to income even at higher financial levels.

Summary In summary, two data sets are examined in this paper in order to more accurately determine the relation between income and subjective wellbeing. The data sets to be used here include a greater number of countries (spanning a wide range of incomes and cultures) and a large, representative longitudinal data set. Several potential relative-standards effects in the income and subjective well-being relation are analyzed: social comparison effects, adaptation/change effects, and expectancy effects. Finally, both the longitudinal U.S. data and the cross-country results provide an opportunity to examine the possibility that income has its effects only at those lower levels of income where basic needs are not completely met. The present studies have the advantage that a number of predictions from standards versus need approaches were generated ahead of time rather than using the theories in a post-hoc manner. In addition, the complexity of our data allows us to test the theories against a larger number of predictions than has been true in the past. S T U D Y 1: U.S, N A T I O N A L

SAMPLE

Method Sample. The subjects were individuals who participated in a large

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ED DIENER

ETAL.

health and nutrition study conducted by several U.S. agencies (see Cornoni-Huntley et al., 1983 for more detailed information). The respondents comprised a multistaged, stratified, national probability sample of 14407 individuals initially surveyed at 100 locations throughout the continental United States between April, 1971 and October, 1975. The researchers systematically oversampled certain subgroups: those living in poverty areas, women of childbearing age (25--44), and elderly persons (65 and over). A follow-up study was conducted between January, 1981 and May, 1984 in which 13 317 of the original participants between the ages of 25 and 74 at the time of the initial survey were located, 11 295 of whom were still living. In the original sample, subjective well-being questions were administered to a random sample of 6913 persons, 4942 of whom completed the questions at follow-up. Additional respondents who did not complete the well-being measures at Time 1 were given them at Time 2. The interval between the initial study and the follow-up was approximately nine years. The data were collected in face-to-face interviews and with questionnaires which focused on health and nutrition, but which also included demographic and psychological questions. Eight items of the General Well-Being Schedule (Fazio, 1977) were employed, which included three pleasant affect items and five unpleasant affect items. A sample item is, "During the past month have you felt down-hearted and blue?" (unpleasant affect). Some items were answered on a six-point frequency scale (1--6) and other were answered on an l 1-point scale (0--10). Items from Time 1 were recoded so that they were on the same metric as the same items at Time 2. We followed the scoring procedures of Costa et at. (1987) in which unpleasant affect items were reversed so that high scores always referred to a large degree of that quality, and then subtracted the total of unpleasant affect from pleasant affect. Again, following the example of Costa et at., we added a constant (36) to avoid negative scores (because of the greater number of unpleasant affect questions), resulting in a scale which could vary from zero to 55, where zero would be extremely unhappy and 55 would be extremely happy. Separate positive and negative affect scales were not justified because a number of the items were bipolar in nature. Procedure.


203

Further, a principal axis factor analysis revealed that the eight items formed one strong factor. Thus, only an overall affect balance score seemed justNed. The General Welt-Being schedule has been shown to be a valid and reliable measure of subjective well-being (Fazio, 1977; Himmelfarb and Murrell, 1983). Family income was reported in categories. At Time 1 the lowest category ranged from losing money or no income to $1000 annually. The highest income category was $25 000 and above. At Time 2 the lowest category ranged from losing money- to earning $3000, and the highest category- was over $100 000. The bottom and top categories were eliminated from most of the analyses due to the fact that these categories were open-ended, with either no lower or no upper limit. Furthermore, it is likely that these extreme categories contain some individuals whose reported income is a misleading indictor of their financial well-being (e.g. a wealthy person who had a tax loss that year). Demographic questions included the race of the respondent, the highest grade completed by the participant, and the strata (geographical area) from which the subject had been sampled. Results The alpha for the eight item subjective well-being scale was 0.84 (N = 6913) for Time 1 and 0.78 (N = 9935) for Time 2. Thus, the scales show good levels of internal consistency in this sample. At Time 1 the correlation between family income and happiness was r(6129) --- 0.13, p < 0.001, and at Time 2 it was r(8751) = 0.12, p < 0.001. Although highly significant, the correlations were not large in absolute magnitude. The correlations are attenuated slightly by dropping the most extreme income categories from the analyses. The stability correlations between Time 1 and Time 2 were 0.67 (N -- 4661, p < 0.001) for income and 0.47 (N = 4947, p < 0.001) for subjective well-being. Thus, the subjective well-being measure showed a good degree of temporal reliability and one that is consistent with levels found in other studies. In Figure 1 the average General Well-Being scores for income groups are shown for Time 1. Because income range categories were requested from respondents rather than specific income, we used the midpoint of each category as the estimate of individual's average

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ED DIENER ETAL.

4O +

÷

SO + ÷

÷

4-

88 ÷

81' ÷

+

86 + 88 + 84

0

6 10 15 Annual I n o o m e O s l ~ o r k ~

20 28 (ThouluuKle)

30

Fig. 1. Income and welt-being for U.S. Time 1.

income in that category. Figure 1 shows the average happiness level for those with each level of income. As can be seen, subjective well-being appeared to show a curvilinear trend, with declining increases in happiness for the upper income categories, and this trend was significant, F (1,7) = 7.79, p < 0.05. Figure 2 shows the relation between income categories and average happiness for Time 2. As can be seen, the income and happiness relation is also curvilinear here, with a decreasing marginal utility for higher levels of income, F (1,9) = 6.17, p < 0.05. Is there an absence of well-being differences after people reach modest incomes at which their basic needs can be met? The data

205


42:

+ ÷ +

S8 4.+ + 8e

4-

G

20

40

~

Annual Inoome C ~ w ~ r l e e

~

(Thouunds)

Fig. 2. Income and well-being for U.S. Time 2.

depicted in Figures 1 and 2 suggest that this is not so because there are still increases in subjective well-being above subsistence levels, the income required to meet basic biological needs. For example, at Time 1 there still seem to be SWB differences above the $6000 per year level, but the differences are quite small above $8000. At Time 2 there still seem to be increases in happiness above the S15 000 per year point. Thus, the increase in happiness for incomes above the subsistence level indicates that the effects of income on happiness do not result solely from an increasing likelihood of meeting universal needs such as for food and drink. As will be seen, the cross-country data lead to the same conclusion.

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In order to examine expectancy effects on the income-happiness relation, income and race effects were examined within the same ANOVA. If African-Americans have lower expectations about their income, relative-standards theory predicts that they would be happier at particular levels of income. Based on social comparison theory, one would hypothesize that African-Americans would expect less income owing to their historical circumstances and because they have income levels comparable to those riving nearest to them. In social comparison theory, individuals are most likely to compare themselves to similar and proximal others (Festinger, 1954). Because ethnic identity is a salient dimension in the U.S., similarity (and hence, comparison) should be perceived to some extent along racial fines. Further, because racially segregated living areas are endemic in the U.S., comparison should be more likely with those of one's own ethnic group. Thus, due to the fact that African-Americans are less well-off financially than Caucasians in the U.S., social comparison theory predicts that they will be happier when income is equal for the two groups. Table I presents the well-being scores by income categories for African-Americans and Caucasians for Time 1. The main effect for income was significant, F(9,6056) = 10.54, p < 0.001, as was the main effect for race, F(1,6056) = 5.80, p < 0.05. As can been seen, higher income persons were happier, and African-Americans reported lower well-being than Caucasians. The interaction, however, did not approach significance. At Time 2 the effect for income was still significant, F(11,8641) -- 11.45, p < 0.001, but the race effect was nonsignificant, F (1,8641) = 0.34), as was the interaction between race and income (F(11,8641) ---- 0.77). The findings at Time 1 suggest that African-Americans were generally less happy, not more so, at specific levels of income than are Caucasians. This outcome runs counter to both social comparison and expectancy explanations for the effects of income on happiness. The reasoning advanced above about why African-Americans might be happier than Caucasians with a particular level of income can also be used to predict that those with relatively little education should be happier with a particular level of income than those with more education. Income and education show a strong relation to each other, and this relation is widely known. Thus, those with less education should on


207

TABLE I Time 1 general well-beingas a function of income and race 1973 Income

African Americans

Caucasions

Average

S1000-1999

35.18 (112) 32.79 (99) 35.75 (83) 34.84 (68) 36.07 (58) 37.32 (50) 37,82 (134) 39.41

35.54 (215) 35.27 (279) 36.86 (306) 36.77 (30I) 37.39 (276) 38.37 (273) 38.50 (1052) 38.53

(101)

(1411)

36.77 (48) 39.60 (20) 36.33 (773)

38.79 (782) 39.31 (408) 38,07 (5303)

35.42 (327) 34.62 (378) 36.62 (389) 36.41 (369) 37.16 (334) 38.20 (323) 38.42 (1186) 38.59 (1512) 38.67 (830) 39.32 (428) 37.85 (6076)

$2000-2999 $3000-3999 $4000-4999 $5000-5999 $6000-6999 $7000-9999 SI0 000-14 999 $15 000-19 999 $20 000-24 999 Average

Note. Numbers of respondents are shown in parentheses.

the average expect less income. Therefore, the uneducated with tow incomes should be less upset with their plight because it is more likely to be expected, and the uneducated with high incomes should be more delighted with their good fortune because their state deviates more positively from their expectations. Respondents were divided into three educational groups: (1) those with less than a high school degree, (2) those with a high school diploma or some college, and (3) those with a college degree or above. In Table 1I, we again can see that the disadvantaged group is not happier at comparable levels of income at Time 1. Nor is the moderately educated group happier than the highly educated group across levels of income. The effect for income was again significant, F ( 9 , 6 0 8 4 ) = 9.33, p < 0.001, and the effect for education was marginally significant, F ( 2 , 6 0 8 4 ) = 2.79, p < 0.07, a l t h o u ~ in a

ED DIENER ETAL.

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TABLE II Time 1 general well-beingas a function of income and education No

1973 Income $1000-1999 $2000--2999 $3000-3999 $4000--4999 $5000-5999 $6000-6999 $7000-9999 $10 000-14 999 $15 000-19 999 $20 000-24 999 Average

High School Diploma

High School Graduate

College Graduate

Average

35.44 (283) 34.45 (273) 36.51 (259) 35.56 (243) 37.16 (211) 37.54 (198) 38.44 (536) 37.96 (462) 38.02 (161) 39.46 (61) 37.02 (2687)

34.80 (41) 34.84 (92) 37.24 (123) 38.21 (106) 37.03 (115) 39.16 (108) 38.19 (576) 38.86 (877) 38.55 (514) 39.20 (245) 38.34 (2797)

33.50 (4) 33.20 (10) 31.60 (10) 37,95 (21) 36.78 (9) 39.43 (23) 39.60 (83) 38.89 (178) 39.49 (167) 39.78 (125) 39.03 (630)

35.34 (328) 34.51 (375) 36.61 (392) 36.46 (370) 37.11 (335) 38.20 (329) 38.40 (1195) 38.59 (1517) 38.63 (842) 39.40 (431) 37.83 (6114)

direction opposite of that predicted by expectancy theory. That is, the more educated groups tended to be happier at the same level of income. The interaction did not approach significance. At Time 2 the results were similar, but the education main effect was nonsignificant. Once again, however, the more educated groups were happier. Thus, there is no indication that lower expectations deriving from less education heighten the value placed upon one's material well-being. Next we examined the effects of adaptation and change in the relation between income and well-being. It is possible in this longitudinal data set to explore the relation between change in income and wellbeing within the same individuals. The zero order correlation between hedonic level at Time 2 and income change from Time 1 to Time 2 was r(4440) = 0.001, N.S. Thus, the effect of income change on happiness was insubstantial, to say the least. Note that change is automatically

209

I N C O M E AND W E L L - B E I N G

confounded with income level in most analyses. That is, when income change has occurred, a new income level is also implied. Thus, in order to make a strong determination of whether change in income has influenced happiness, it must be shown that this change has an effect beyond the influence of Time 2 level of income. If such an incremental effect is not shown, it is possible that an effect which is due to one's level of income is falsely attributed to change in income. In order to separate the effects of change, an analysis of variance in which three levels of income (low, medium, and high) were crossed with three levels of relative change (decrease -- those who change downward in income at least 0.5 S.D., increase -- those who changed upward in income at least 0.5 S.D., and no change -- those who changed less than 0.5 S.D. in relative income) was performed. Note that change was computed after income was standardized at each time. This was necessary because the time period was one of high inflation, although not of high real economic growth, and therefore the dollar values of incomes at the two times are not equal in worth. Further, the lowest and highest categories of income level were not included because we could not uncover people who had moved up or down, respectively, into these categories. The means are shown in Table I]I. As can be seen, the income groups differed in well-being, and this difference was significant, F (2,2633) = 5.92, p < 0.01. The difference

TABLE HI Time 2 general well-being by income level and income change categories Income change

1. Decreased income (--0.5 S.D. or tess) 2. Unchanged income (Less than 0.5 S.D. change) 3. Increased income (+0.5 S.D. or greater) Average

Time 2 income level Low ($3000 to 9999)

Medium SI0 000 to 19 999)

High ($20 000 to 25 000)

Average

37.13 (N = 223) 36.70 (N = 718) 35.55 (N = 53) 36.74 ( N = 994)

38.26 (N = 468) 38.28 (N = 513) 37.22 (N = 117) 38.16 ( N = 1098)

38.04 ( N = 151) 38.09 (N = 335) 36.19 (N = 64) 37.86 (N = 550)

37.92 (N = 842) 37.52 (N = 1566) 36.56 (N = 234) 37.56 (N = 2642)

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between income change categories was in the direction opposite to the relative-standards prediction, although this difference was nonsignificant, F (2, 2633) -- 1.95. The interaction between income category and income change did not approach significance. It appears that there may be stresses involved in moving upward into a higher income group (see also Thoits and Hannan, 1979) which decreases happiness levels, but this difference was not statistically significant. The primary analysis for social comparison effects was the examination of happiness of people with comparable incomes in poorer and richer geographical areas. Individuals in three poorer strata (a county or contiguous counties) were compared with those in three richer strata for Time 1. These were the three poorest and three richest strata at Time 1 in the 35 areas of initial data collection. Because the identity of specific strata are kept anonymous in the data source, income for the strata was estimated from the income of sample members. As can be seen in Table IV, the average family income in the richer three strata was estimated to be nearly double that of the family income in the three poorer areas. The effect for income was significant, F(2,1163) = 12.39, p < 0.001, but the effect for strata (F(1,1163) = 0.50) and the interaction (F (2,1163) = 2.18) were not significant. At Time 2, a similar analysis was performed. The three richest and three poorest strata were selected and subjective well-being was TABLE IV Time 1 general well-being by income level and income of geographical area Strata

Poorer strata (Est. average $8300) Richer Strata (Est. average S 15 900) Average

Individual income level (Time 1) Low (Sl000 to 3999)

Medium ($4000 to 9999)

High (S10 000 to 24 999)

Average

35.01 (U = 242)

37.63 (U = 329)

39.21 (N = 178)

37.16 (U = 749)

34.79 (N = 33)

39.72 (N = 116)

38.52 (N = 271)

38.55 (N = 420)

34.99 (N = 275)

38.17 (1"4= 445)

38.79 (N = 449)

37.66 (N = 1169)

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analyzed in terms of income categories within these strata. A wider range of income categories was examined because of their availability at Time 2. The results are shown in Table V. Once again, the effect of income was significant F (4,17t4) = 8.42, p < 0.001). People in richer geographical areas were of borderline significance happier than those in poorer strata (F (1, 1714) = 3.28, p < 0.07), and the interaction did not approach significance. The findings clearly cast doubt on a social comparison interpretation because people at a specific level of income were neither happier in the presence of poorer others nor tess happy in the presence of wealthier others. TABLE V Time 2 general well-being by income level and income of geographical area Income level

$3000-$9999 SlO 000-S19 999 $20 000-$34 999 $35 000--$74 999 $75 000--$100 000 Average

Geographical strata Poorer strata (Est, average $8800)

Wealthier strata (Est. average $22 300)

Average

36.47 (450) 38.19 (282) 38.60 (228) 40.19 (94) 38.10 (10) 37.72 (1064)

35.90 (108) 35.71 (136) 38.28 (182) 39.46 (217) 43.00 (17) 37.87 (660)

36.36 (558) 37.38 (418) 38.46 (410) 39.68 (311) 41.19 (27) 37.78 (1724)

Note: Numbers in parentheses represent sample sizes.

Discussion

The present study found significant correlations between subjective well-being and family income. The present data were based on a large, heterogeneous, nationally representative sample. The income and subjective welt-being relation was significant in all of the analyses at tv¢o points in time, indicating that income is a resource that does covary with well-being. But based on the small size of this effect, there are

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clearly many other important influences on well-being. The effects of income were curvilinear, with the strongest effects at the lowest income levels. Nevertheless, there still appear to be effects at income levels which are far above subsistence levels. The results were surprising in showing that no relative-standard effects were operating. There were no social comparison, adaptation, or expectancy effects found, and the results generally were in the opposite direction from that predicted by the relativity approach. There are, however, shortcomings in particular findings in this study. Nevertheless, the universal absence of relative standard effects across a variety of different situations seems both surprising and compelling. The above findings are based on one highly industrialized and affluent country. Thus, in Study 2 we examined affluence and subjective well-being across countries. This cross-country comparison allows another approach to examining the influences of relative standards, and also permits an examination of the declining effects of wealth across a larger, more diverse sample of countries. STUDY 2: INTERNATIONAL COLLEGE SAMPLE Method Participants. From 1984 to 1986 Alex Michalos of Guelph University in Canada and his collaborators collected data as part of an international study on student well-being (Michalos, 1991). In 39 countries, 18 032 college students (9022 females and 9010 males) from 72 universities reported on their welt-being and domain satisfactions. In some countries only one university participated (e.g. Chile), in several countries two or three universities were represented (e.g. Philippines), and in some countries there were four or more universities participating (e.g. Canada and Taiwan). Countries toward the low end of the income range were quite diverse in terms of culture (e.g. Bangladesh, Egypt, Kenya and Thailand), as were the wealthier countries (e.g. Bahrain and Switzerland). Procedure. The questionnaire had a demographic face page, followed by scales on which participants rated twelve life domains from various

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perspectives. The global life satisfaction measure was a single question which asked, "How do you feel about your life as a whole right now?," and was answered on a 7-point scale ranging from terrible (1) to delightful (7). Evidence for the validity and reliability of this measure can be found in Andrews and Withey (1976) and Sandvik, Diener, and Seidlitz (1991), both of whom present evidence of strong validity for this single item measure. The happiness measure asked, "Considering your life as a whole, would you describe it as very happy (1), unhappy (2 or 3), mixed (4), happy (5 or 6), or very happy (7)?" Although not widely used, this scale is similar to a single item measure developed by Fordyce (1977) which has shown excellent validity and psychometric properties (Fordyce, 1988; Larsen et al., 1985). The GNP/per capita data for countries were obtained from Michalos (1991) except for Puerto Rico, which was obtained from Hoffman (1990). Data on the economic growth rates of countries was obtained from the International Financial Statistics Yearbook (1990), except for Taiwan where growth was estimated from information in The Economist Intelligence Unit (1990--1991). For economic growth, gross domestic product per capita (in deflated units) was used in most cases. Where this figure was not available, the growth in gross national product per person was used instead. Results The data for all subjects within a country were averaged within each sex for each variable. The average subjective well-being ratings (for life satisfaction and happiness) were then correlated with the Gross National Product per person across countries for the two sexes separately. These correlations are shown in Table VI. As can be seen, both average life satisfaction and global happiness correlated significantly across countries with GNP per person, and these correlations were moderately strong and of similar magnitude for both sexes. Because Portugal was an extreme outlier on well-being, the correlations are also shown with it omitted. In addition, it can be seen that participants' satisfaction with domains such as housing and transportation are also correlated with GNP/person. As might be expected, satisfaction with domains such as religion and family were less highly correlated with GNP/person.

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ED DIENER E T A L . TABLE VI Correlations between subjective well-being variables and GNP/person Men Global Satisfaction (Without Portugal) Global Happiness (Without Portugal)

0.46 (0.49) 0.42 (0.50)

Women 0.51 (0.54) 0.38 (0.50)

Domain Satisfactions

Transportation Housing Recreation Employment Health Finances Partner Education Friends Family Religion Self-esteem

0.64 0.47 0.39 0.37 0.35 0.39 0.22 0.22 0.03 --0.14 0.03 --0.18

0.54 0.42 0.45 0.34 0.40 0.08 0.35 0.23 0.42* 0.07 0.00 -0.24

Note: correlations of 0.32 or greater, p < 0.05; 0.41 or greater, p < 0.01; 0.54 or greater, p < 0.001. * denotes a significant difference between the female and male correlations.

Figure 3 shows the relation between G N P / p e r s o n and life satisfaction (averaged across the sexes). No trend toward curvilinearity was found in the relations between income and happiness, F (1,36) -- 0.13, and income and satisfaction, F (1, 36) -- 0.10. E c o n o m i c growth of each country (per capita, in deflated monetary units) was c o m p u t e d for the five year period from 1980 to 1985. Separate growth rate data were not available for Puerto Rico, and so it was omitted f r o m this analysis. T h e average growth rate during this period varied f r o m a low of - 0 . 0 3 4 for Bahrain to a high of 0.072 for Korea. The correlation between growth and happiness (r ---- 0.08) and growth and life satisfaction (r --- - 0 . 2 4 ) were b o t h nonsignificant. With Portugal omitted, these correlations were r = - 0 . 3 7 , p < 0.05 and r -- 0 . 4 5 , p < 0.01. These correlations suggest that rapid economic growth is accompanied by tess, not more, happiness. Recall that G N P is

215


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positively related to subjective well-being. This pattern of findings suggests that richer countries are happier, but that the process of rapid wealth building in a country may be inversely correlated "Mth happiness. Discussion

The present results show a moderately strong relation between life satisfaction (and happiness) and affluence across countries. Although these correlations appear to be stronger than those found in Study 1, it must be recalled that the data were aggregated by country (because we

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did not have income data for individual respondents). Thus, the effects of other variables (e.g. social relations or physical attractiveness) may be largely averaged out. The very large correlations of wealth with happiness across countries presented by Veenhoven (1991) must be interpreted in the same light. There is no evidence of a curvilinear effect in these findings, but it does appear that there is more variability in well-being between poor countries than between rich countries. The effects of affluence appear to be primarily in areas such as transportation and housing on which we would assume wealth would have more impact. Contrariwise, the effects of wealth on satisfaction with family, friends, and religion seem in most cases to be small. One question regarding the current study is whether the results are valid and representative, given that they are based solely on college student respondents. It should be noted that relative happiness in countries in terms of subjective well-being is similar to that of Inglehart and Rabier (1986) who based their conclusions on national surveys (Michalos, 1991). Further, one could argue that correlations based on college students understate the relation across countries between income and SWB because students tend to be elites who do not show the extremes of poverty wtfich exist in some countries. Thus, it seems likely that the present results are meaningful in terms of indicating a relation across countries between affluence and subjective well-being. Nevertheless, the results for income change might underestimate the true effects because students have moved from the family home to the university during this period, thus obscuring changes in affluence in their country. It is nonetheless interesting that growth in affluence tended to be inversely related to subjective well-being. The current data have a strength which is complementary to the methodology of Study 1. The participants in this study did not report their own income. Instead, income figures were taken from an external source. Thus, potential artifacts related to reporting both one's own income and one's life satisfaction are obviated in this study. GENERAL DISCUSSION The data of the two studies indicate that income is related to wellbeing, both within and between countries. This correlation was repli-


217

cable across gender, educational, and racial groups, as well as at two points in time. The effect replicated in a national probability sample of Americans as well as in an international data set comprised of 39 countries. There appeared to be a declining marginal utility to money in regards well-being in the U.S. data, but not in the between-country data. The data suggest that income had some effect both in the within- and between-country data at even the higher income levels. College students usually live far above the subsistence level, so the relation between affluence and subjective well-being in this group is quite informative. One might wonder why happiness did not increase from 1973 to 1982 in the U.S., when income appears to have increased substantially. One likely reason that happiness did not increase was that this was a period of high inflation and little real economic growth. Thus, the increase in income may be more apparent than real. Second, there could be trends such as increased crime or pollution which offset any increases in income in terms of improved subjective well-being. The data were unexpected and consistent in suggesting that relativestandards had no influence on the effects of income on subjective wellbeing. Neither social comparison, adaptation, nor expectancies seemed to influence subjective well-being. None of the specific predictions made in the introduction based on relative standards models were borne out. It could be argued that too many inferences were required to rigorously test the effects of relative standards in this case. After "all, we cannot be sure that people compare themselves to neighbors or to racially similar others. We cannot be sure that people do not compare across national boundaries. Nevertheless, it should be noted that the original theory of social comparison (Festinger, 1954) indicated that people compare themselves to proximal and similar others. To the degree that people compare themselves to virtually anybody, the theory becomes harder to rigorously test. It should also be noted that Fujita and Diener (1991) have collected more complete evidence among college students on social comparison and satisfaction in a number of life domains. They have found that social comparison usually does not influence satisfaction with different domains, even when people's perceived discrepancies from comparison others is directly assessed. Further, like Fox and Kahneman (1992), Fujita and Diener present evidence which suggests that past studies (e.g.

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Emmons and Diener, 1985) which found a relation between social comparison and satisfaction may have been based on cognitive artifacts, not on the direct perception of discrepancies. Heady and Veenhoven (1989) came to the same conclusion in their findings that perceived gaps arose because of subjective welt-being rather than vice-versa. In their words, " . . . happy people perceive small gaps. It does not appear to be the case that perceiving small gaps causes happiness." (p. 117). Thus, studies of satisfaction in which comparisons to standards are actually measured and analyzed support the conclusions of the present study in finding that social comparison does not influence long-term well-being. Why the results of other laboratory based findings which support the importance of relative judgments to happiness (e.g. Parducci, 1968; Smith et al., 1989; Tversky and Griffin, 1991) do not generalize to natural settings is unknown. It may be that in the laboratory, subjects are forced to attend to comparison standards, whereas in natural life people may often avoid making comparisons. Or it may be that in natural settings, the endowment value (Tversky and Griffin, 1991) of things is much greater in importance than contrast effects. Finally, it may be that laboratory based comparison effects rest on altering the way subjects use response scales (Sherman et al., 1978), whereas in real life settings the response scale may be more influenced by affect. The total lack of effects for relative standards leads us to think of many plausible counterarguments. Perhaps people's expectancies rise immediately with their wealth, regardless of the income of their group. Perhaps people react to change, but only do so for a brief time. Each of these possibilities must await future research. At the same time, they also point to the need for greater specificity in relative standards theories. If these theories are to be falsifiable, they must be stated with enough precision that a data set will be capable of truly testing them. For example, if data do not demonstrate that a discrepancy has an effect (e.g. social comparison), one can argue that a different discrepancy was operative in this case (e.g. a comparison with people's past). These approaches are difficult to rigorously test, especially in field settings, because there is no specification of what discrepancy should be operating in any partict~ar case. One paradox, for example, in the relative standards theories is that if people's standards adapt to virtually

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all conditions, why don't they adapt to certain expectancies and social comparisons, so that these standards no longer have an effect? It could be argued that the ten year time period was too long to show effects due to changed income -- that the change may have been too distant in the past so that complete adaptation has already occurred. But some individuals should have changed in the last several years, and some correlation between change and happiness ought to have been manifested based on these individuals. The 0.001 correlation between income change and happiness allows little room for effects even for a subsample who have more recently experienced change. Of course some negative factors may accompany increases in income (Thoits and Hannah., 1979) which could offset the positives, but at this point we have too little knowledge to test this possibility. It is interesting to note, however, that neither increasing income at the individual level nor country level were accompanied by increases in subjective welPbeing. Although relative standards theories often treat perceived discrepancies (Michalos, 1985), the present studies have been based on objective discrepancies. There is considerable evidence that perceived discrepancies correlate with well-being (e.g. Emmons and Diener, 1985; Lamberti et al., 1989). Perhaps the phenomena are based solely on perceptions, and not on objective circumstauces. Perhaps people tend to ignore unfavorable comparisons as much as possible so that external sources of information carry little weight. Perhaps aspirations rise as fast as income, so that objective increases in income make little difference. It should be noted, however, that if discrepancy theories are based on internal perceptions, but not on external circumstances, then alternative explanations must be carefully ruled out before these theories can be confirmed. Many alternative processes can account for the perception of negative discrepancies, and it is possible that such perceptions may have no causal role in well-being. For example, those with an unhappy temperament may perceive unfavorable discrepancies in their lives. At the same time, these perceived discrepancies may not drive their unhappiness; rather, their unhappiness may cause the perception of the unfavorable discrepancies. For instance, if one asks a respondent the broad question of whether things have gotten better or worse for them financially, the answer is just as likely to be a [:unction of their personality or happiness level as it is to be due to objective

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change. Thus personality may influence perceived discrepancies without any relation to objective discrepancies. One potential criticism of the present studies is that they are based on self-reports of happiness. First, it should be noted that income does correlate with happiness in these studies, so the question of the relativity of these effects is still of interest. More importantly, Diener and his colleagues (Pavot et al., 1991; Sandivk et al., 1992) have shown that self-reports of subjective well-being have substantial validity and correlate strongly with nonself-report measures of well-being. Finally, the instruments used in these studies have shown excellent levels of validity (e.g. Andrews and Withey, 1976; Fazio, 1977; Himmelfarb and Murrell, 1983). Although the present results do not give support to a relative standards approach, they also do not completely uphold a simple universal needs approach. Income seems to have some effect on happiness far beyond the level of meeting subsistence needs. There is some support, however, for the idea that finances have less and less effect as one ascends the income ladder. Why might income make a difference in happiness even beyond the level of meeting one's elementary biological needs? It is perhaps because the need for mental stimulation and interest can be increasingly met at higher income levels. Although there is certainly also a potential asymptote to this, it may be quite high. For example, travel, a boat, and a summer house all might meet a need for interesting variety, but require substantial sums of money. Similarly, status may accrue to people with greater wealth, even at high levels of income. Finally, people with more money may be able to avoid certain types of stress by hiring others to do unpleasant work for them, and so forth. Thus, it is possible that money may help meet a number of needs beyond food, health, and shelter, and therefore even higher levels of income may show some relation to subjective wellbeing. It may be, however, that there are also negative utilities to a higher income (e.g. a more complex life, loosened social ties, theft of one's possessions, etcetera), so that the relation between affluence and subjective well-being becomes more uncertain as one ascends the income ladder. Another explanation for higher levels of income still being related to happiness is that society may generate needs in people which can be better met with an increasing income. It could also be that it is harder


221

to live in highly industrialized societies unless one's income is substantial. For example, one might be capable of using public transportation to get about, but the structure of societies may make it difficult to do one's grocery shopping while travelling by the bus. Further, the amount of income required to fully meet one's needs in modern society may be substantial. For example, there is no direct biological need for a dishwasher or washing machine, but ownership of these items might save one considerable fatigue and boredom. Also, freedom and selfefficacy may be heightened by higher income. The relations between income, needs, and subjective well-being is certainly a fertile area for future research. The present results suggest that the income-happiness relation is not strongly based on relative standards. Whether the income and subjective well-being is based on basic drive needs, more complex interest or status needs, or culturally learned needs is an important area for further exploration. As the world rushes toward greater industrialization and development, it is imperative that we understand how wealth affects subjective welfare. Michalos (1991) has found strong support for discrepancy theories based on subjects' perceptions of gaps. The present studies found no support for discrepancy theories based on objective circumstances. The challenge is to now reconcile these findings at a conceptual and empirical level, and to find the boundary conditions under which gap theories operate. NOTE i The terms happiness and subjective well-being are used interchangeabty in this report. These general terms are used to connote life satisfaction, the presence of pleasant affect, and the absence of unpleasant affect. It should be noted, however, that the measure used in Study 1 were of hedonic level or affect balance (the preponderance of pleasant over unpleasant affect). In study 2, both a life satisfaction scale and a happiness scale were used. (In this context, the "happiness" item is also likely to reflect primarily hedonic level.) For a more technical discussion of subjective well-being concepts and measures, see Andrews and Robinson (1991).

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Parducei, A.: 1968, 'The relativism of absolute judgments', Scientific Americma 219, 84~90. Pavot, W., Diener, E., Cotvin, R., and Sandvik, E.: 1991, 'Further validation of the Satisfaction with Life Scale: Evidence for the cross-method convergence of seKreport well-being measures', Journal of Personality Assessment 57, 149--16 I. Sandvik, E., Diener, E., and Seidfitz, L.: 1992, 'Subjective well-being: The convergence and stability of self-report and nonsetf-report measures', Journal of Personality (in press). Sherman, S. J., Ahlm, K., and Berman, L.: 1978, 'Contrast effects and their relationship to subsequent behavior', Journal of Experimental Social Psychology t 4, 340--350. Smith, R., Diener, E., and Wedell, D.: 1989, 'Interpersonal and social comparison determinants of happiness: A range-frequency analysis', Journal of Personality and Social Psychology 56, 317--325. Thoits, P. and Hannan, M.: 1979, 'Income and psycholo~cal distress: the impact of an income-maintenance experiment', Journal of Health and Social Behavior 20, 120-138. Tversky, A. and Griffin, D.: 1991, ~Endowment and contrast in judgments of wellbeing', in F. Strack, M. Argyle and N. Schwarz (eds) Subjective Well-Being: An InterdisciplinaryPerspective (Pergamon Press, Oxford), pp, 101-- 1 ! 8. Veenhoven, R.: 1988, Is Happiness Rdative?, paper presented at the 24th International Congress of Psychology, Sydney, Australia. Veenhoven, R.: 1991, 'Is happiness relative', Social Indicators Research 24, 1--34.

Psychology Department, University of Illinois 603 E. Daniel Street, Champaign 61820 U.S.A.