The rich getting richer is more depressing than a rise in unemployment, shows research
The persistent rise in the share of income held by the top 1 per cent in many countries round the world is damaging the wellbeing of the other 99%, with worrying implications for public health and national productivity, new research has shown. A 1% increase in the share of taxable income held by the top 1 per cent hurts life satisfaction as much as a 1.4% increase in the country-level unemployment rate.
These findings are published in a working paper, Top Incomes and Human Well-being Around the World, by Richard V. Burkhauser (Cornell University), Jan-Emmanuel De Neve (Saïd Business School, University of Oxford), and Nattavudh Powdthavee (London School of Economics), and in a Harvard Business Review blog article by Jan-Emmanuel De Neve and Nattavudh Powdthavee.
"Some theories suggest that, overall, inequality can be a good thing : individuals are motivated by seeing others accumulate more wealth, as they believe that they can do the same", said De Neve. ‘While this may happen to a certain extent in some transitional or emerging economies, our research shows that, worldwide, income inequality at the very top makes us all less happy with our lives, even if we’re relatively well-off.’
Using data from the Gallup World Poll and the World Top Incomes Database, the researchers plotted the share of taxable income held by the top 1% in each country over time against reported levels of life satisfaction and positive and negative emotional wellbeing across populations.
They found:
• A pronounced negative correlation between individuals’ ‘life evaluation’ – or the extent to which they were satisfied with their lives – and the share of income held by people in the top percentile.
• No relationship between positive emotional well-being and inequality at the very top of the income distribution. This is probably because, as Nobel laureates Daniel Kahneman and Angus Deaton found in their 2010 study (‘High Income Improves Evaluation of Life but not Emotional Well-Being’), measures of life satisfaction were sensitive to socio-economic factors such as a person’s income level and employment status, whereas measures of emotional well-being were more sensitive to how people spend their time, such as commuting or caring for others.
• A significant positive relationship between top income shares and negative emotional experience. In societies where the richest hold most of the country’s income, people were more likely to report feeling ‘stressed’, ‘worried’, or ‘angry’ on the day before the Gallup survey.
‘We started our research by asking if income inequality at the very top really matters to the life evaluation of the average person – and the results have shown conclusively that it does,’ said Powdthavee. ‘Other studies have demonstrated the strong links between unhappiness and low productivity, the increase in sick leave and stress; policymakers may need to pay more attention to the wider consequences of the rising share of income the top 1 per cent enjoy.’
The working paper, ‘Top Incomes and Human Well-being Around the World’, by Richard V. Burkhauser, Jan-Emmanuel De Neved), and Nattavudh Powdthavee is available here
To read the full HBR blog post click here