IncomeThere are always problems of measurement error and tim-
ing here, and the truth probably lies somewhere between
the cross- sectional and the fixed- effects results.
The cross- sectional results in the table are fairly typical of
those found in other countries. Such analyses have by now
been carried out in most countries in the world and are
tabulated in online Annex 2. They always show a positive
impact of log income on life- satisfaction (0– 10), and the
simple coefficient (with no cet. par.) is generally around 0.3.
Holding other things constant, the coefficient is nearer 0.2.
The Easterlin Paradox
It would seem to follow that, if average real income in a
country rises substantially, as it has in most countries since
the second World War, life- satisfaction would also rise sub-
stantially. Yet in many countries, including the United States,
this has not happened. Figure 2.3 gives the evidence for the
United States and the three countries whose panel data we
have been looking at. In all of them income per head has
risen substantially, while average life- satisfaction has not.^16
Table 2.2. How life- satisfaction (0– 10) is affected by log income
(household panel data)Cross- section PanelBritain 0.16 (.01) 0.04 (.01)
Germany 0.26 (.01) 0.08 (.01)
Australia 0.16 (.01) 0.06 (.01)
USA 0.31 (.01) NA