How a $75,000 salary does—and doesn't—make you happy

Dan Diamond, Executive Editor

Angus Deaton thinks that money doesn't buy happiness—after you reach an annual salary of $75,000 per year, that is.

Deaton, a Princeton economist who won a Nobel Prize on Monday, has helped develop ways to measure income and well-being in poor countries. He's pioneered work on tracking consumption of commodities.

He's a giant in the field. 

I'd bet you haven't heard of him.

But I'm sure many readers are familiar with one of Deaton's discoveries, which comes from a 2010 paper that he co-wrote with fellow Nobel laureate Daniel Kahneman. According to Deaton and Kahneman, your mood—basically, how happy you are on any given day—stops improving when a person starts making about $75,000 in annual income.

"[H]igher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress," the authors conclude in Proceedings of the National Academy of Sciences.

The finding has shaped how at least some people think about their careers and compensation. In a high-profile announcement earlier this year, the CEO of a credit card processing company called Gravity Payments raised the minimum wage of his company to $70,000, saying that he did it because of Deaton and Kahneman's study. I've definitely talked to coworkers who have cited the statistic, too.

Also see: Would you be willing to talk about your salary? Many wouldn't, study finds.

Still, focusing just on daily mood ignores the other half of the study. For instance, Deaton and Kahneman did determine that the richer a person is, the more likely that he or she will have higher values of "life satisfaction." Essentially, a person who's paid more will have more positive thoughts about his or her own life, even if there's no difference in daily stress.

"While people's day-to-day moods stop getting better after $75,000 in household income, Deaton and Kahneman find there's absolutely no drop-off point for life satisfaction," Dylan Matthews points out at Vox.

Of course, "life satisfaction" and "daily satisfaction" don't always go hand in hand. A number of studies have found that some of the richest Americans are also among the most miserable. And what good is it to think favorably about your life's accomplishments, if you can't enjoy them?

"I wonder if mood is [a] better measure of happiness than self-reports of how awesome people think they are," Micah Weinberg, the president of the Bay Area Council Economic Institute, mused on Twitter.

If anything, Deaton's $75,000 benchmark is just another reminder: High salaries alone are rarely satisfying.

But finding engagement and meaning in your life and work? That's a more promising—and profitable—path to happiness.

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