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?

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. 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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