Economists, (or at least some of them because as we know they can never agree with each other) seem to have lost one faith and gained another. The old faith was that money brought happiness. The new one is that happiness brings money.
It has been axiomatic to the practitioners of the dismal science that the pursuit of money is worthwhile. And, by-and-large, there is a linear relationship: the more money you have the more happy you are likely to be. But then things started to go wrong. About 40 years ago, using population data, it was demonstrated that money had a very limited effect…after a modest amount (around £50,000/$70,000 a year) you got no happiness bang-for-your-buck.
In fact the very wealthy seemed particularly unhappy. No simple pattern emerged. Of course there has always been the debate between the spiritualists and the materialists about the power of money to satisfy basic needs. And between libertarians and socialists on how to spend money for the long term benefit of all.
Then the psychologists started piling in to the debate. We heard about the terrible disease of Affluenza that very rich people caught and which made them very unhappy. Psychologists have always argued that money is never a very good motivator at work. It sure had powerful and profound de-motivational properties if you “get it wrong”, but if you “get it right” (pay people equitably) it has little effect.
There are four points the psychologists make:
The first relates to the idea that the effects of a pay rise very soon wear off as people adapt to their new conditions. Money can be a very effective motivator, but you need a great deal of it to stop adaptation effects. Too much for most organisations to bear.
Second, what leads to pay satisfaction is not so much absolute salary but comparative salary. If my salary goes up dramatically, yet so does that of my comparison group, there is no change in my behaviour. No matter what people are paid, if they believe, with or without evidence, that they are not equitably and fairly paid, they become demotivated. The smallest differential can have the greatest effect.
Third, money is not everything; in fact it may be much less important than health or holidays, time with the family and job security. People are prepared to trade off other things for money once they have enough, or grow weary of the game which is not worth the candle. The young, the desperate, perhaps the greedy, are willing to do anything for money. But are they the people on your payroll, or the people whom you want to employ?
Finally, there is the eternal implication of tax and spend…all very well to increase pay but if increased taxes eat heavily into it there can be few marginal benefits. Why earn when the government takes too much? If the government takes 50% and more…hardly worth the effort.
There has been research on people who achieve sudden wealth through lottery wins or inheritance. It shows that whilst there is an obvious and explicable boost in well-being after the money is obtained, within a year or two people revert to their “previous level” of happiness. Suddenly wealth brings only short term increase in happiness and for a significant few it actually makes things worse.
So money does not bring happiness. But what if the opposite were true? To test this hypothesis you need to follow up group of people for quite a long time and be able to measure accurately both their happiness and well-being and also how much money they are making. Longitudinal studies of representative populations is good science.
One can study the epidemiology of wealth.And this is precisely what two British economists at Warwick University did. They studied 90,000 young people for 7 crucial years from ages 22 to 29. And what did they find? People with a sunnier disposition were more likely to get a degree, get hired and get promoted…all of which related to income.
So the half-full glass fills up but the half empty glass evaporates. But how does this work? What is the mechanism which explains this causal relationship? Consider the following:
1. Optimistic, positive, life-enhancing, happy people are nicer to be around so they receive more attention and are more likely to be selected for everything compared to their pessimistic, negative, life-sapping, miserable peers. That is why they are hired and promoted: all that “can do”, “will-have-a-go”, “sure, it’s a pleasure” that you get from the sunny worker.
2. Happy people have better moods, which means they make better decisions and feel able to rise to greater challenges. Bad moods or general moodiness can easily affect clear thinking and decision making.
3. Happy people are mentally and physically fitter…they are less prone to anxiety, depression, moodiness and psychosomatic disorders. This means they don’t go absent much and don’t miss out on things. They pitch up and pitch in more often and with more enthusiasm.
4. Happy people have better relationships: they are more attractive and have more friends who can be useful for a whole range of activities. We all need social support at times and happy people have greater access to it.
So, buy one of those books on how to be happy. It may be a seriously good investment.