Saturday, August 24, 2019

Money and Happiness

In recent years I have been making the case for paying people at the top of an organization no more than 3-4 times what the lowest paid member of that organization is paid.* So if the cleaner or the newly-hired junior clerk makes $30,000, $90,000 or so is an appropriate salary for the CEO. I've been arguing that on grounds of fairness, but it now appears that such ratios may benefit those at the top of the ladder as well as those on lower rungs. A 2018 study by Andrew Jebb and Lewis Tay of Purdue University concludes that there is a point beyond which having a higher income is not likely to make you happier-and may even make you less so. Depending on the measure used, the study suggests that the "point of satiation" is in the range of $75,000 to $95,000 (in 2018 US dollars). Amy Patterson Neubert (also of Purdue) summarizes the results in this way:
The study ... found once the threshold was reached, further increases in income tended to be associated with reduced life satisfaction and a lower level of well-being. This may be because money is important for meeting basic needs, purchasing conveniences, and maybe even loan repayments, but to a point. After the optimal point of needs is met, people may be driven by desires such as pursuing more material gains and engaging in social comparisons, which could, ironically, lower well-being. (Purdue News, 13 February 2018: Money only buys happiness for a certain amount)
The fairness argument is still the most compelling one, of course. But it's good to know that rich people have reason to support a much fairer pay structure too-even if they find it difficult to look beyond their own self-interest!

P.S. My attention was drawn to the Purdue research by an excellent article in today's Globe and Mail on how large houses can also make you less happy. It's by Matthew Hague; I highly recommend it. (
*See "Why Plato was Right: Those at the Top Should Be Paid No More than Three or Four Times What We Pay Those at the Bottom "

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