Income Inequality Leads to Less Happy People

  • 2015-12-30
  • CityLab

Fiscal conservatives might tell you that inequality is an inevitable and salutary side effect of the free enterprise system. In the U.S., after all, income inequality tends to be the most pronounced in highly innovative economies such as New York or the Silicon Valley. As a counterpoint, liberals might point to the many Scandinavian nations that are among the wealthiest, happiest, most productive, and most equal places on earth.

Who’s right? A recent study from Shigehiro Oishi at the University of Virginia and Selin Kesebir at the London Business School takes a close look at the connection between economic growth, inequality, and happiness across 34 nations. The big takeaway: Economic growth is associated with lower levels of happiness in nations with higher income inequality.

Advanced vs. less developed nations

The study tests the connection between economic development, inequality, and happiness using two different data sets. The first data set covers happiness in 16 advanced nations like Denmark, France, and the United Kingdom using happiness data, or what researchers term “subjective well-being,” from surveys collected by the World Database of Happiness (developed by the Dutch sociologist Ruut Veenhoven). Both parts of the study use data on economic development measured as GDP per capita from the World Bank’s World Development Indicators, and on inequality based on the Gini coefficient (the standard measure of inequality) from the United Nations University World Institute for Development Economics Research.

While happiness did track the level of economic development across these 16 advanced nations, the results changed when inequality was added to the equation. Higher levels of inequality led to lower levels of happiness, even in the most economically advanced nations. In fact, the researchers found that the percentage of respondents who said they were very happy was inversely cor­related with income inequality (with a negative correlation of −.618).

“Every single time income inequality decreased between two time points, the percentage of ‘very happy’ responses went up," the researchers write. “And every time income inequality increased, the percentage of ‘very happy’ responses went down. In other words, although economic growth was steady and strong during this period, the evenness of the income distribution was fluctuating, and happiness was inversely related to income inequality.”