Income and Well-Being

Marta Morga

Snyder and Lopez (2002) define subjective well being as “a broad concept that includes experiencing pleasant emotions, low levels of negative moods, and high life satisfaction” (Snyder and Lopez 2002: 467). The importance of the relationship between income and its contribution to SWB has been emphasised, being the focus of not just psychological but sociological (e.g Veenhoven 91) and economic (e.g. Sen 99) theories (Biswas-Diener 2008). This paper will examine the complex and incoherent relationship between material wealth and SWB. This paper concludes by not validating one theory definitive over another, but opening up the table of its epistemological differences, delivering inconsistencies in the research and calling for a further review of the adequacy of these repeated measuring perspectives.

The two main contrasting arguments that will be examined are that there is a positive and linear relationship between material wealth and SWB (Stevenson and Wolfers 2008; Diener, Sandvik, Seidlitz and Diener 1993; Deaton, 2008) and that there is a positive relationship, but it tapers off or ceases to exist once a certain level of income is reached (Veenhoven 1991; Myers 2000). A sociological perspective will be added to offer an understanding of the deeper issues in a wider context. A critical methodological awareness and its limitations will also be contributing throughout the work (as methodology is what shapes research, data and theories in the first place). Reference to income and SWB in this work will be referred to, as the threshold of satisfying basic needs being crossed, unless otherwise specified.

How they measure SWB and income

To begin with it is important to establish the definition and tools used which together establish this relationship and how their differing result in contributing to messy and contradicting understandings. The tools used to measure wellbeing can be global (life satisfaction and happiness), specific-personal indicators (satisfactions with life domains) and include the affective and cognitive components of SWB. A popular measure posited by Diener combines the three components of SWB: life satisfaction, dispositional positive affect, and dispositional negative affect ( Diener, Suh, Lucas and Smith 1999). There is dispute about the accuracy these measures provide as these constitute global/reflective judgments which many argue do not reflect a realistic answer, falling pray to bias tendencies such as focalism and subtle situational manipulations tendencies (Kahneman et al 2006). This debate will be further reviewed throughout this article.

Some researchers draw on large world databases such as Euro barometer Survey (a data collection intended to track public opinion across the European Union), Gallup World Poll or World Values Survey allowing them to measure life satisfaction and happiness over longer periods of time and over larger contextual locations or countries (Stevenson and Wolfers 2008). It is interesting to note, the economic literature has tended to treat measures of life satisfaction and happiness as largely interchangeable, whereas the psychology literature on the other hand, distinguishes between the two (Stevenson and Wolfers 2008). This raises questions about researchers using large world databases by economists and opens insights into a not so coherent understanding of SWB between disciplines.

Stevenson and Wolfers (2008) and Devoe and Pfeffer (2009) detected and investigated this problem but after some investigation suggested that the “happiness GDP link appears to be roughly similar to the life satisfaction GDP, although perhaps, as with the world values survey, slightly weaker” (Stevenson and Wolfers 2008: 65).

There is also the relationship of income and SWB across countries, measured as the national income growth and that of income and SWB within, measured as individual income growth. Income is generally measured using real GDP per capita measured at purchasing power parity. This information is generally drawn from databases such as the World Bank’s world development indicators database (Stevenson and Wolfers 2008). Fischer (2008) argued that GDP was an inaccurate measure for wealth and that household income, male income and average wages are more valid measures. Fischer used this measure to contradict the popular wealth-happiness paradox, effectively demonstrating the ability to confer different results depending on what tools are used. This work will not debate which measure is more efficient, but will use this contradiction to help unravel the complex and often contradicting research and theories.

Another significant varying measuring tools of this relationship used is either that of the Logarithm of GDP or absolute GDP. Using the logarithm of GDP always resulted in a positive linear income well being relationship across all countries unlike absolute GDP. Stevenson and Wolfers (2008) on the other hand state that their results were robust whether one conceived of well being as rising with log GDP per capita or with its absolute level. Again this article will not directly examine which scale is most valid, but draw upon why the difference exists and examine how this is affecting the coherency of the research and literature.

Theories that attempt to explain the relationship

Biswas-Diener (2009) organized the main theories used today to explain this complex relationship between material wealth and SWB under two main headings; goals and values, and relative standards (comparison judgment, adaptation, hedonic treadmill, Easterlin paradox). This paper will examine these main theories along with some fresh minor ones attempting to further unravel the complexities of the data.

Goals and Values

Emmons (1999) proposed that goals are the behavioural units by which we enact and measure our personal values. There is an understanding that actively wanting money might actually be toxic for happiness, where materialism is negatively correlated with measures of SWB (Solberg, Diener and Robinson 2004). “In economically advanced countries people who value earning money more than other goals are less satisfied with their standard of living and their lives” (Carr 2004: 33). Studies have since been taking a step deeper, focusing on the individual differences such as goals and values that could be moderating the relationship between income and SWB on higher levels.

Malka and Chatman (2003) for instance, proposed that individual differences in intrinsic and extrinsic work orientation might moderate these relationships. There research showed a connection between subjective wellbeing and income that changes depending on individuals’ extrinsic and intrinsic orientations towards work (Malka and Chatman 2003). Individuals with a more extrinsic work orientation exhibited a stronger association between income and subjective wellbeing. These values related to money and material possessions were said to be possibly only moderating the relations between possessing these resources and cognitive appraisals. This was not the case on the other hand for emotional wellbeing (Malka and Chatman 2003). This study therefore suggests an enduring impact of work values on the cognitive and affective responses to annual income exemplifying a complex diffraction between these components that together account for overall SWB. The methodological limitations of this study was in its sample size of participants only consisting of 124 participants and although controlling for gender, ethnicity and age in their regression analysis, still consisting of only students of Masters of Business administration in a Western context. In order to strengthen this study further, a cross cultural and wider grouping of participants would have been beneficial.

Focalism

Devoe and Pfeffer (2009) assess another complexity to the relationship drawing on the literature of focalism. This decision-making literature suggests that salient information influences our global decisions on SWB, showing a higher correlation. In other words, when people consider the impact of any single factor on their well being they are prone to exaggerate its importance (Kahneman et al 2006). This essentially affects the measure of SWB which asks for global life satisfaction questions, which in this case would suggest that the answers are constructed only when asked, and are, therefore, susceptible to the focusing of attention on different aspects of life (Kahmenam et al 2006). This point is further strengthened when assessing SWB and income using a measure of experienced happiness (experience sampling methods) rather than a global measure, showing a weaker correlation between income and wellbeing when using the first (Kahneman 2006). Seligman (2003) disagrees with this form of measurement, suggesting we are our memories rather than our sum total experiences. It is suggested that studying moment by moment puts too much emphasis on transient pleasures and displeasures. Taking this into consideration, the majority of research around income and wellbeing is assessed by global measures.

Devoe and Pfeffer (2009) draw on this information as a basis to their argument on how the role of organizational experiences and management practices can affect our evaluation of happiness. They suggested that payment regime has psychological implications for understanding the money-happiness connection, where organizational practices that make the connection between time and money focal, are likely to cause individuals to rely more heavily on income when assessing their SWB (Devoe and Pfeffer 2009). In their study they demonstrated that individuals paid by the hour were more likely to associate their time with monetary value, therefore relying on income more when evaluating their SWB. This study was able to demonstrate that by the difference of participants who calculated their hourly pay to those who didn’t (but were then made to indirectly) which difference affected the way in which SWB was evaluated (Devoe and Pfeffer 2009). It is important to note that although the study demonstrated highly consistent results across multiple studies using multiple methods, overall this effect size was not large.

This research non-the less, emphasises that individual differences can moderate the link between income and subjective wellbeing. Devoe and pfefer (2009: 23) conclude that “high income has its advantages and disadvantages, and the relative strength of each depends in part on what the individual values at the workplace”. So SWB measures are influenced by focalism, demonstrated by participants payment regime which demonstrated psychological implications on how one would asses their SWB placing more value on SWB when income was more focally transferred through hourly pay vs. not. Through its emphasized fundamental biases and the influence of subtle situational manipulations, focalism, not accounted or assessed inappropriately, could be suggested to be a source of error of a disproportionate scale, undermining the validity of SWB measures in retrieving realistic and representative data in regard to, amongst other things, how income really affects our happiness. (Kahneman et al 2006).

Sociological implications

“To a great extent, wellbeing depends on our ability to choose a direction in life, to form intentions and to make sure we are following a preferred path” (Boniwell 2006:53). Being orientation goals such as self-actualisation and intrinsic aspirations such as self-acceptance, affiliation and community feeling goals have been demonstrated to be associated with overall higher wellbeing (Erich Fromm 1976). Unfortunately the consumerist, capitalistic modern society dominating the West explicitly encourages having orientation, such as obtaining wealth and status and extrinsic goals such as financial success, social recognition and appearance (Craig, 2009). Extrinsic goals are associated with lower self-esteem, more television watching, more drug use, more difficult and less satisfying relationships, and acting in a narcissistic and competitive manner (Boniwell 2006).

There is also an understanding that “it is not so much the content of the goals themselves that is important, but the congruence between the values a person holds and their goals” (Biswas-Diener 2008: 139) essentially placing values as a moderator model. So in a sense if one values congruent goals, whether they are extrinsic or intrinsic and one manages to provide activities that fulfil these goals, one essentially, provides one self with a sense of satisfaction (Oishi, Diener, Suh, Lucas 1999).

As expressed by Malka and Chatman (2003) high income was related to higher sense of satisfaction with life if ones values lay in extrinsic motivation at the workplace. Consumerist society by its nature encourages this, affecting people’s values towards money and consumerism essentially encouraging it (Craig 2009). The media reflects Societies norms, therefore providing an extreme focalism towards these goals with empty promises of pleasure, satisfaction and happiness. But why are these goals associated with lower sense of wellbeing?

Habituation, adaptation and the hedonic treadmill

Habituation or adaptation is the term given to explain an evolutionary perspective that suggests we adapt or quickly habituate to pleasurable situation (Carr 2004). “In modern times this evolutionary design feature of humans underlies the tyranny of consumerism” (Carr 2004:32). So essentially people believe that they will be happy when they get this new type of clothing, food, house or car, but once they have it for a while, they habituate or adapt and want one that is bigger or better. So in regard to the hedonic treadmill, although deriving initial satisfaction from a new purchase (Van Boven and Gilovich 2003) or pay rise (Parducci 95) the emotional effects are either small or short lived (Biswas-Diener 2008). So we could therefore argue, that if one values money and looks (extrinsic/having orientation) and achieve it, one could increase their SWB, but only temporarily, as the hedonic treadmill will get one accustomed to these resources very quickly, essentially undermining this satisfaction as it won’t last.

Biswas-Diner (2008) suggest that “the concept of adaptation in the context of Easterlin’s theory may partly explain why highly materialistic goals do not typically translate to increased happiness” (Biswas-Diener 2008:318). Malka and Chatman (2003) argue though that high income even though adapted to, could be valued for its capacity to confer esteem. Again focusing on specifically the satisfaction aspect of SWB first, using the terms of Maslow’s (1954) hierarchy of needs, they suggest, “Excess income can aid in the satisfaction of esteem needs because high income implies high competence and overall personal worth. So even when satisfaction of basic physiological and security needs is not an issue, high income will still be valued for its capacity to confer esteem” (Malka and Chatman: 26). This satisfaction therefore then plays a role in the emotional aspect of SWB by equating personal worth, undermining the effects of adaptation of income to our SWB, as increased income could, as a side effect confer personal worth and esteem which increases SWB.

Comparison judgment

The above debate is effectively explained as that of comparison judgment. The term Relative standards groups the models that are based on the idea that people evaluate their SWB consulting internal standards and other comparison judgments (Diener and Lucas 2000). These standards include comparison with others (Festinger 1954); comparison with past performance or future expectations (Michalos 1985) and can be made from an upward or downward perspective (Helgeson and Taylor 1993). So in a sense, if one earns more money then their immediate reference group, as a comparative standard, one would assess their SWB higher.

In the light of its sociological implications in today’s western society it again shows relevance in affecting how one would feel about material wealth and SWB. “When we measure our success against the standards presented in the media, rather than the best in our immediate reference group, this can lead to unhappiness because we cannot attain the standards set by media images because of the fictitious nature of the standards!” (Carr 2004:33).

This is therefore connected to the previously debated perspectives which I have argued in the light of a consumerist, capitalistic society which could spell a recipe for disaster, where focalism is being placed and encouraging having/extrinsic orientations, which along with comparison judgment theory places the lay person in a paradox situation, in regard to material wealth, striving for something that he/she will practically never be able to achieve (unrealistic, fictitious nature- e.g. celebrities who insinuate they have 10 cars, never work, always by the pool), and for the few that do, will never essentially fulfil, as we adapt and need more.

Craig (2009) described this situation quite eloquently in her encounter with a distressed taxi driver who, to achieve all the material things his family wanted had to work 6 days a week. The man described this paradox situation of increased stress and less time at home, as necessary to “feed the monster” (aka consumerism mentality). This could explain the finding by Kahneman et al (2006) of people who earn higher incomes who they suggest show slightly higher levels of tension and stress. They suggest that “people with above average income are relatively satisfied with their lives but are barely happier than others in moment to moment experience” (Kahnemna et al 2006:34) They use this finding to possibly helping explain why “income is more highly correlated with general life satisfaction than with experienced happiness, as tension and stress may accompany goal attainment, which in turn contributes to judgments of life satisfaction more than it does to experienced happiness” (Kahneman et al 2006:36). This study non the less, basis its theories on the understanding that life satisfaction has little or no further increase once GDP per capita exceeds $12,000 (Layard 2005). This again has been argued to depend on whether one measure GDP in logarithm or absolute perspective, where the latter would support this and the first undermine this theory.

Conclusion

So what story does the research tell? As the author I suggest that this relationship is still very complex, incoherent and the overall common global, quantitative method of determining SWB and income, is still not in depth enough. The SWB tools predominantly used, overrides a lot of factors that could be swaying these results. Although researchers are going through extreme lengths (thousands of participants, cross countries, cross time, etc) to discover a simple theory on whether money makes you happier or not, I believe that we are not in a position yet to conclude such dramatic statements with the tools that we are presently using to understand this relationship. The amount of possible diverging factors, unaccountably affecting the data, are still enormous. Entailing the major responsibility research around this relationship holds in regard to the major effects on policy makers (e.g. Layard 1980) entailing its accuracy is essential. I feel there is a need to call for further emphasis on the individual factors that could be affecting/swaying results, more consistent use of measures across disciplines, possibly new sets of tools altogether and a combination of more mutli-methods techniques within research, empowering research with a wider more complex insight and coherency into, as shown in this paper, this complicated relationship between material wealth and SWB