For years, we relied on a 2010 study by Nobel laureates Daniel Kahneman and Angus Deaton that suggested emotional well-being increased with income only up to $75,000 (About $100,000 in today’s dollars), then plateaued. This finding resonated with many because it meant income had its limits when it came to making us happy. But that goes against what I learned as an economist, so what gives?
The story is more complex, new research says otherwise. The original researchers joined forces with psychologist Matt Killingsworth, who had found contradictory results in 2021, to resolve their differing conclusions. The new study found that, for most people, higher incomes are associated with greater happiness. However, there's an important exception – about 20% of people show a happiness plateau after reaching $100,000 annually. Those people were unhappy regardless of their income.
So, what explains the differences in the results?
The original 2010 study primarily captured the experience of less happy individuals, but it also missed significant variations among happier people. For those who are already emotionally well-off, the happiness-income relationship accelerates beyond $100,000. The difference in results was related to how the survey asked the income questions and what answers were available to measure happiness.
These findings have implications for everything from tax policy to career choices, and I want to remind you that income is one of many factors that influence our well-being.
Here is a podcast that goes in more depth on this topic.