Global Money Can Buy Happiness, If You Spend It Right

Case Summary 

A 1974 study by the United States economist Richard Easterlin suggested that money can neither buy love nor happiness. The American economist performed this now-famous study while at the University of Pennsylvania, where he studied comparative on moderately wealthy and very wealthy countries and concluded that although rich people are happier than poor people, rich countries are not happier than poor countries, and that they do not grow happier as they get richer. The explanation offered for this interesting paradox, according to Easterlin, was that only relative income matters to happiness, and not absolute income.

However, two Wharton professors, Betsey Stevenson and Justin Wolfers, have contested Easterlin’s findings, saying that his paradox does not exist. Based on new research, the truth is not paradoxical at all, but rather simple. According to the new study, rich people are happier than poor people, rich countries are happier than poor countries and as countries get richer, they tend to get happier. The new findings are a departure from the original findings by Richard Easterlin. 

Betsey Stevenson and Justin Wolfers claim that Easterlin had little data to work with 35 years ago. The two Wharton professors draw conclusions from data about more countries, including poor ones, over longer periods of time, unlike their predecessor. For instance, public opinion surveys and other studies indicate that life satisfaction is highest in richer countries. In the United States, for example, 9 in 10 Gallup Survey respondents in households making 250,000 dollars a year considered themselves very happy compared to only 4 in 10 with income below $30,000 on balance. As such, Stevenson and Wolfers concluded that GDP and happiness go hand in hand and that absolute income matters. 

Easterlin would probably agree, as he now concedes that people in wealthy countries do report more happiness than those in poorer countries. However, Easterlin still doubts that money alone is the reason for happiness. He argues that good social welfare policies could contribute to happiness in rich countries, giving the example of Denmark where social welfare policies are directed toward the most salient concerns of families such as healthcare.

Critical Thinking Questions 

Question 10-12 

Money is an important determinant of an individual’s satisfaction at work and with life in general. It is money that ensures that an individual gets a good house, car and provide good education for his children. However, it is important to realize that employees like to compare themselves with peers in the workplace. This means that organizations need to ensure that there is an equitable distribution of compensation among workers to ensure that they get job satisfaction. If an employee feels that his colleagues are paid more than he is paid for a similar job, they may get demotivated and unhappy about their role in the organization. Organizations should be significantly concerned about the influence of money on employees' job satisfaction and ensure that salaries and rewards are allocated equitably. 

Question 10-13 

An emphasis on financial incentives for employees is not good for organizations. I agree with Easterlin's idea that money is not the only reason for employees' happiness. There are other important determinants of employee job satisfaction and happiness in the workplace. Thus, the non-financial incentive could complement financial incentives in promoting employee happiness. Organizations should efficiently address other important concerns of employees such as access to quality healthcare, work-life balance, and self-esteem. This could be achieved through the provision of health coverage, paid leaves, and recognition.

Question 10-14 

It would be very hard to communicate to a workforce that is not created equally. This is because other employees will feel discriminated against, particularly when they are performing the same type of job. Creating a king of corporate star system may have detrimental effects on the job satisfaction and performance levels of employees. It would be appropriate to offer equitable pay so that employees feel that they are appreciated equally. Besides, this will promote teamwork in the workplace. However, where every employee has a different deal, it would be difficult to convince employees to work collectively towards a common organizational goal. Therefore, pay inequality is likely to affect employees' happiness adversely. 

Key Learnings 

There are two important lessons that I have learned about organizational employees; job satisfaction and equitable pay. Employee job satisfaction refers to how content an employee is with his job (Markovits et al., 2014). As such, the more satisfied employees are with their jobs, the happier they are. Thus, organizations should ensure that their employee engagement is aligned with employee job satisfaction. Another valuable lesson that I have drawn from the case study is that organizations need to ensure equitable pay for employees. If employees feel that others are treated better than others, they may feel dissatisfied with their jobs. Therefore, job satisfaction goes hand in hand with equitable pay and rewards (Shuck et al., 2014). Organizations should ensure transparency and equity in the workplace to allow effective communication in the workplace. Satisfied employees are more likely to become team players, who can help in achieving set organizational objectives. 

References

Markovits, Y., Boer, D., & van Dick, R. (2014). Economic crisis and the employee: The effects of economic crisis on employee job satisfaction, commitment, and self-regulation. European Management Journal , 32 (3), 413-422. 

Shuck, B., Twyford, D., Reio, T. G., & Shuck, A. (2014). Human resource development practices and employee engagement: Examining the connection with employee turnover intentions. Human Resource Development Quarterly , 25 (2), 239-270.