Wellbeing: A Complete Reference Guide, Volume V, Economics of Wellbeing

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Income and Wellbeing

A Selective Review

Brendan Kennelly

NUI Galway, Ireland

Introduction

One of the most fundamental questions about wellbeing is the relationship between it and income. This issue can be explored at several levels. What role does income play in determining individual wellbeing? What is the relationship over time and across countries between aggregate measures of income and aggregate measures of wellbeing? Can the impact of income on wellbeing be distinguished from other factors such as health or social relationships or work?

An issue may be fundamental, but this sometimes does not prevent it from being ignored by researchers for long periods of time. It is a reasonable summary of a great deal of economic analysis in the twentieth century that the relationship between income and wellbeing was taken to be unworthy of much investigation. Blanchflower and Oswald (2011) recall how difficult it was for them to interest fellow economists in their work on subjective wellbeing in the early 1990s. To paraphrase John Rawls, more income was assumed to be something that all rational individuals wanted. There seemed to be little desire to question this assumption and generations of economics students began their study of microeconomics by accepting this analysis as given. As Stutzer and Frey (2012) have said, doubting that income and happiness were close correlates constituted an important challenge to traditional economics.

The public policy implications of the standard ...