Income Doesn’t Make You Happy

In recent decades age-old wisdom has been bolstered by strong empirical evidence that money doesn’t make you happy. The income elasticity of happiness (or subjective well-being or life satisfaction or just about any word that you might want to use), diminishes rapidly as you become wealthier. Once you enter the middle class (~$60,000 household income in Australia), the kind of additional money you need to make a dent in your subjective happiness is enormous.

There are three main reasons for this. The first is adaptation—we get used to money. At first, brunching every day seems oh so extravagant, but it wears off for most people, as do Dior dresses and private jet rides. In a seminal study, Brickman et al (1978) found that 2 years after the incident, both lottery winners and recent paraplegics reported the same average happiness as controls (i.e. people who didn’t win or break their spine), despite spikes and dips immediately after the wins and accidents.

The second is relative income effects. We don’t typically compare ourselves to a slum dweller in Chennai and feel grateful, but instead to our peers, who are typically as wealthy as us. Because we aren’t “better” than them, we feel a bit miffed. Of course they feel the same way, which perpetuates a cycle of one-upmanship. This is part of the origin of the “keeping up with the Joneses” phenomenon.

The third reason is the opportunity cost of income, most importantly the absence of leisure. Most people think income grants leisure, but that’s wrong, only wealth grants leisure, and even then only if you use up your wealth. Most sources of large income streams (hedge fund managing, corporate lawyering, pop stardom etc.), require massive amounts of time spent at work. That isn’t pleasurable, and it leaves little time for spending your money, socialising or sex.

So we know that money doesn’t make you happy. But to really nail down the coffin, we also discovered, thanks mostly to the work of Tim Kasser, that materialists are less happy on average than the average citizen. It might be more accurate to say that successful materialists are happy but the likelihood of being a successful materialist is low. Either way, being all about the Benjamins is not a wise orientation.

So desiring un bon salaire is dumb. University students in Australia almost all enter the middle class, if not the upper-middle class, which begins around the $100,000 p.a. mark (less than a decade of work in the public service). You don’t need to prioritise income to get a good income in Australia. We are the lucky country.
So what should my colleagues want from their jobs?

The answer will be different for everyone. There is no objective standard of what makes a good job, nor is there a job that everyone will enjoy. What’s critical is that people choose a job based on deep reflection on their identity. For a job to be good it needs to align with your preferences, habits and values.

One place to start is to consider what entry level tasks you don’t mind so much – if you hate the “bitch work” you aren’t going to be around long enough to make it to the glamour positions. This approach will make things more likely to align with your habits. For values, you might consider finding a job that is meaningful. Chances are that will involve a pay cut, but we’ve already discussed why that doesn’t matter.