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

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 per year, Killingsworth et al. (2023) appears to have resolved these conflicts, concluding that emotional well-being is monotonically increasing in income for all but the unhappiest individuals. In this paper, we show that this conclusion is sensitive to the placement of the income threshold at which the relationship between emotional well-being and income is allowed to plateau. Using standard econometric methods, we propose a data-driven approach to detect the placement of the threshold. Using this data-driven income threshold, a flat relationship between household income and emotional well-being above a threshold around $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.