Income and emotional well-being: Evidence for well-being plateauing around $200,000 per year

Mikkel Bennedsen

paper

Income and emotional well-being: Evidence for well-being plateauing around $200,000 per year

arXiv:2401.05347

Abstract

Is emotional well-being monotonically increasing in the level of income or does it reach a plateau at some income threshold, whereafter additional income does not contribute to further well-being? Conflicting answers to this question has been suggested in the academic literature. In a recent paper, using an income threshold of $100, 000 p er y e a r, K i l l in g s w or t h e t a l . (2023) a pp e a r s t o ha v er eso l v e d t h eseco n f l i c t s, co n c l u d in g t ha t e m o t i o na l w e l l - b e in g i s m o n o t o ni c a l l y in cr e a s in g inin co m e f or a l l b u tt h e u nha pp i es t in d i v i d u a l s . I n t hi s p a p er, w es h o w t ha tt hi sco n c l u s i o ni sse n s i t i v e t o t h e pl a ce m e n t o f t h e in co m e t h r es h o l d a tw hi c h t h er e l a t i o n s hi p b e tw ee n e m o t i o na l w e l l - b e in g an d in co m e i s a l l o w e d t o pl a t e a u . U s in g s t an d a r d eco n o m e t r i c m e t h o d s, w e p r o p ose a d a t a - d r i v e na pp r o a c h t o d e t ec tt h e pl a ce m e n t o f t h e t h r es h o l d . U s in g t hi s d a t a - d r i v e nin co m e t h r es h o l d, a f l a t r e l a t i o n s hi p b e tw ee nh o u se h o l d in co m e an d e m o t i o na l w e l l - b e in g ab o v e a t h r es h o l d a r o u n d$ 200,000 per year is found. While our analysis relaxes the assumption of a pre-specified income threshold, it relies on a number of other assumptions, which we briefly discuss. We conclude that although the analysis of this paper provides some evidence for well-being plateauing around $200,000 per year, more research is needed before any definite conclusions about the relationship between emotional well-being and income can be drawn.