Earn More, Live Less:

Modern Economic Alternatives

Ashish BharadwajPraveen Nimrod Ezekiel

M.Sc. Economics (I) 2006-07Madras 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 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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