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One Company's New Minimum Wage: $70,000 a Year
New York Times Business Day – April 13, 2015
New Minimum Wage: $70,000 a Year

Dan Price, C.E.O. of Gravity Payments, surprised his 120-person staff by announcing that he planned over the next three years to raise the salary of every employee to $70,000 a year. [View More]

CEO describes the moment when he decided to raise his company's minimum wage to $70,000 a year
Business Insider – April 21, 2015

Dan Price recently set the minimum wage at Gravity Payments to $70,000. The happiness research behind Mr. Price's announcement on Monday came from Angus Deaton and Daniel Kahneman, a Nobel Prize-winning psychologist. They found that what they called emotional well-being - defined as "the emotional quality of an individual's everyday experience, the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant" - rises with income, but only to a point. And that point turns out to be about $75,000 a year. [View More]

High income improves evaluation of life but not emotional well-being
By Daniel Kahneman and Angus Deaton
Proceedings of the National Academy of Sciences (PNAS) – September 21, 2010
Author Affiliations
Contributed by Daniel Kahneman, August 4, 2010 (sent for review July 4, 2010)

Abstract - Recent research has begun to distinguish two aspects of subjective well-being. Emotional well-being refers to the emotional quality of an individual's everyday experience—the frequency and intensity of experiences of joy, stress, sadness, anger, and affection that make one's life pleasant or unpleasant. Life evaluation refers to the thoughts that people have about their life when they think about it. We raise the question of whether money buys happiness, separately for these two aspects of well-being. We report an analysis of more than 450,000 responses to the Gallup-Healthways Well-Being Index, a daily survey of 1,000 US residents conducted by the Gallup Organization. We find that emotional well-being (measured by questions about emotional experiences yesterday) and life evaluation (measured by Cantril's Self-Anchoring Scale) have different correlates. Income and education are more closely related to life evaluation, but health, care giving, loneliness, and smoking are relatively stronger predictors of daily emotions. When plotted against log income, life evaluation rises steadily. Emotional well-being also rises with log income, but there is no further progress beyond an annual income of ~$75,000. Low income exacerbates the emotional pain associated with such misfortunes as divorce, ill health, and being alone. We conclude that high income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.

The question of whether "money buys happiness" comes up frequently in discussions of subjective well-being in both scholarly debates and casual conversation. The topic has been addressed in a vast and inconclusive research literature (for a selection of recent reviews, see refs. 1–4). No single article can settle this complex question definitively, but data recently collected by the Gallup Organization in the Gallup-Healthways Well-Being Index (GHWBI) provide a rich source of observations, as well as an unusually detailed measurement of well-being. We analyze the responses of more than 450,000 US residents surveyed in 2008 and 2009 to several questions about their subjective well-being. The results suggest a rather complex answer to our opening question.

A discussion of subjective well-being must recognize a distinction between two concepts that are often confounded (5–8). Emotional well-being (sometimes called hedonic well-being or experienced happiness) refers to the emotional quality of an individual's everyday experience—the frequency and intensity of experiences of joy, fascination, anxiety, sadness, anger, and affection that make one's life pleasant or unpleasant. Life evaluation refers to a person's thoughts about his or her life. Surveys of subjective well-being have traditionally emphasized life evaluation. The most commonly asked question in these surveys is the life satisfaction question: "How satisfied are you with your life as a whole these days?" The GHWBI survey is unusual in its attempt to distinguish and capture both aspects of subjective well-being. Emotional well-being is assessed by questions about the presence of various emotions in the experience of yesterday (e.g., enjoyment, happiness, anger, sadness, stress, worry). Life evaluation is measured using Cantril's Self-Anchoring Scale, which has the respondent rate his or her current life on a ladder scale in which 0 is "the worst possible life for you" and 10 is "the best possible life for you." We find that emotional well-being and life evaluation have different correlates in the circumstances of people's lives. In particular, we observe striking differences in the relationship of these aspects of well-being to income. (For related observations in the Gallup World Poll, see ref. 9.)

Confusion abounds in discussions of our question. For an example, consider the statement that "a lasting marriage…is estimated to be worth $100,000 a year" (10). This correct statement of a research finding is likely to be misunderstood, because many readers will interpret it by imagining the pleasure of a change of this magnitude in their income. The pleasure of a raise is likely to be transient, however, due to a phenomenon known as adaptation. Because of adaptation, the difference in well-being between two random individuals whose income differs by $100,000 is far less impressive than the joy and misery that these individuals would immediately experience were they to trade places. Because the observed effects of long-established income differences are much smaller than intuitively expected, they are sometimes described as inconsequential, but this too is misleading. When entered in multiple regression model to predict well-being along with other aspects of life circumstances (marital status, age, education), the effects of household income are almost invariably both statistically significant and quantitatively important. We report that household income matters for both emotional well-being and life evaluation, and that there are circumstances under which it matters for the latter when it does not matter for the former.

Some of the confusion regarding the effects of income on well-being can be traced to incorrect analysis. Psychologists and sociologists often plot measures of subjective well-being against income in dollars, but a strong argument can be made for the logarithm of income as the preferred scale. The logarithmic transformation represents a basic fact of perception known as Weber's Law, which applies generally to quantitative dimensions of perception and judgment (e.g., the intensity of sounds and lights). The rule is that the effective stimulus for the detection and evaluation of changes or differences in such dimensions is the percentage change, not its absolute amount. In the context of income, a $100 raise does not have the same significance for a financial services executive as for an individual earning the minimum wage, but a doubling of their respective incomes might have a similar impact on both. The logarithmic transformation reveals an important regularity of judgment that risks being masked when a dollar scale is used.

Plots of subjective well-being against income in dollars invariably yield a strongly concave function. Although concavity is entailed by the psychophysics of quantitative dimensions, it often has been cited as evidence that people derive little or no psychological benefit from income beyond some threshold. Although this conclusion has been widely accepted in discussions of the relationship between life evaluation and gross domestic product (GDP) across nations (11–14), it is false, at least for this aspect of subjective well-being. In accordance with Weber's Law, average national life evaluation is linear when appropriately plotted against log GDP (15); a doubling of income provides similar increments of life evaluation for countries rich and poor. As this example illustrates, the statement that "money does not buy happiness" may be inferred from a careless reading of a plot of life evaluation against raw income—an error avoided by using the logarithm of income. In the present study, we confirm the contribution of higher income to improving individuals' life evaluation, even among those who are already well off. However, we also find that the effects of income on the emotional dimension of well-being satiate fully at an annual income of ~$75,000, a result that is, of course, independent of whether dollars or log dollars are used as a measure of income.

The aims of our analysis of the GHWBI were to examine possible differences between the correlates of emotional well-being and of life evaluation, focusing in particular on the relationship between these measures and household income. [View More]