Tag Archives: Income Inequality and Happiness

The new issue of *Psychological Science* includes an article: “Income Inequality and Happiness.” The authors are Shigehiro Oishi, Selin Kesebir, and Ed Diener. We received this newstip from Ken Pope (www.kenpope.com).

One of the most profound social changes in the United States over the last 40 years has been the growing income inequality among social classes (Hacker & Pierson, 2010; see Fig. 1). One commonly used index of income inequality is the Gini coefficient.1 In the 1960s and 1970s, the Gini coefficient in the United States was much lower than in France and was on par with many other European nations (Atkinson, 1996). In contrast, by 2008, the Gini coefficient was much higher for the United States than for most European nations and for Canada (United Nations Development Programme, 2009). The social consequences of this growing inequality in the United States have been investigated in economics (Piketty & Saez, 2003), political science (Bartels, 2008), sociology (Blau & Blau, 1982), and epidemiology (Kawachi, Kennedy, Lochner, & Prothrow-Stith, 1997). In psychology, however, surprisingly little empirical work has been conducted on income inequality. What are the psychological consequences of income inequality? Are individuals happier when national wealth is distributed more evenly?

Although there is a large body of research on income and happiness (Diener & Oishi, 2000; Dunn, Gilbert, & Wilson, 2011; Stevenson & Wolfers, 2008), few researchers have investigated the relation between income inequality and happiness. The small amount of existing research on this relationship has exclusively focused on cross-national (Berg & Veenhoven, 2010; Diener, Diener, & Diener, 1995; Helliwell & Huang, 2008), cross-state (Alesina, DiTella, & MacCulloch, 2004), or cross-city comparisons (Hagerty, 2000). Most important, existing research has produced mixed results. Some researchers have found a negative association between income inequality and happiness (e.g., Hagerty, 2000), but other researchers have found no association (e.g., Berg & Veenhoven, 2010). These cross-sectional analyses are also vulnerable to various third-variable accounts. For instance, nations (e.g., Brazil), states (e.g., Mississippi), and cities (e.g., New Orleans) with high income-inequality indices are also different from nations (e.g., Denmark), states (e.g., Massachusetts), and cities (e.g., Minneapolis) with low income-inequality indices in other factors, including climate, geography, population size, natural resources, and language. Cross-national comparisons on income inequality have also been criticized because Gini coefficients were not always calculated in the same fashion across nations (Deininger & Squire, 1996). In contrast, cross-temporal analyses within a single nation naturally control for many third variables (e.g., geography, language) inherent in cross-national comparisons and are also free from the technical issues surrounding the calculation of Gini coefficients. Therefore, in the study reported here, we conducted a much stronger test than has previously been conducted for the association between income inequality and happiness by focusing on changes in income inequality within the United States.

In addition to these methodological limitations, previous research on income inequality and happiness has not identified any psychological mechanisms to account for the link between societal income inequality and individual-level happiness. In our study, we postulated and tested two psychological mechanisms. First, many people (especially low- and middle-income earners) are likely to perceive the world to be unfair only if “the rich get richer.” It is possible, then, that people will perceive less fairness in the years with greater income disparity, and this perception in turn could lower those individuals’ overall happiness in such years. Second, income disparity could disjoint and divide community members (Putnam, 2000), and as a result, it could make people trust others less (Ichida et al., 2009). To the extent that trust is positively associated with happiness (Inglehart, 1999), lowered general trust could explain why people are in general less happy in times of income inequality.

In addition to examining these two mediating mechanisms, we also investigated whether the relation between national income disparity and individual happiness is moderated by that individual’s income level. It is likely that income inequality disproportionately affects the happiness of low-income individuals because income inequality reflects the perceived phenomenon of the rich getting richer. Because the negative link between income inequality and the happiness of low-income individuals could be due to reduced household income in the years with greater income disparity, we also tested whether the negative association between income inequality and the happiness of low-income individuals is due to this economic factor (i.e., reduced household income), as opposed to psychological factors (i.e., lower perceived levels of fairness and trust).

[…]

We investigated the relation between income inequality and happiness over a 37-year period in the United States. As predicted, Americans were on average less happy in years with more societal income inequality than in years with less societal income inequality. We demonstrated that the negative association between societal income inequality and individual-level happiness was explained by perceived fairness and general trust. We also found that the negative association between income disparity and happiness was present among Americans with lower incomes but not among Americans with higher incomes. Moreover, we showed that it was not the reduced income but the lowered levels of perceived fairness and trust that made low-income Americans feel less happy in the years with greater income inequality.

Although there is a large body of research on income inequality in other social and behavioral sciences (see Wilkinson & Pickett, 2009, for a review), relatively few researchers have investigated the role of income inequality in psychological science. More important, the small body of existing research on income inequality and happiness has not examined any psychological mechanisms. To this end, our mediation findings for the first time delineate the psychological mechanisms linking a socioecological factor (income inequality) with individual-level happiness, and therefore contribute to the emerging topics in socioecological psychology (Oishi & Graham, 2010; Oishi, Kesebir, & Snyder, 2009).

Social scientists have debated why Americans have not become happier over the last 50 years despite the enormous growth in national wealth (Easterlin, 1974). At first, researchers assumed that economic growth was not associated with an increase in individual happiness because of social-comparison processes (other people’s wealth was also increasing), upward shifts in aspirations, and hedonic adaptation (Easterlin, 1974). Recently, however, researchers have found that economic growth is in fact associated with an increase in happiness over time in many nations other than the United States (Stevenson & Wolfers, 2008). It has been unclear, however, why massive economic growth over the past decades has translated to an increase in happiness among the Danish, French, and Germans, but not among Americans. The existing theories cannot explain the anomaly of the United States, as an upward shift in aspiration, hedonic adaptation, and social comparisons should apply similarly to other nations with economic growth. Our findings provide a novel clue for this puzzle. Income growth without income disparity is likely to result in an increase in the mean happiness of a general population. This new hypothesis needs to be carefully tested in the future.

[…]

Here’s how the article ends: “In conclusion, Americans are happier when national wealth is distributed more evenly than when it is distributed less evenly. If the ultimate goal of society is to make its citizens happy (Bentham, 1789/2008), then it is desirable to consider policies that produce more income equality, fairness, and general trust.”