This Study on Happiness Convinced a CEO to Pay All of His Employees at Least $70,000 a Year

Smile, you’re richer.

Photo by STRDEL/AFP/Getty Images

You can thank one Mr. Dan Price for the Internet’s feel-good business story of the day. The founder and chief executive of Seattle-based credit card processing company Gravity Payments has decided give out a massive raise that will bring the minimum salary for his 120 employees to $70,000 per year. “If it’s a publicity stunt, it’s a costly one,” writes the New York Times, noting that the average annual pay at Gravity is currently just $48,000. Thirty workers will see their earnings outright double. To finance this gesture of goodwill, Price says he will slash his own paycheck from $1 million to $70,000, and spend down much of his company’s profits. Assuming the Times hasn’t missed some dark ulterior motive, the man is a mensch.

And, apparently, the sort of guy who reads academic literature in his downtime. According to the Times, Price hatched his idea after reading an article by psychologist Daniel Kahneman and economist Angus Deaton exploring the eternal question of whether money can indeed buy happiness. Their answer amounted to: yes and no. Based on data from a massive survey by Gallup, the pair concluded that people with higher incomes did indeed enjoy a sunnier mood. Asked to recall their emotions the previous day, they were less likely to report that they had been stressed or worried, and more likely to remember feeling happy and smiling. But there was a point of diminishing returns. Once people earned $75,000 per year, extra pay didn’t statistically improve their state of mind at all. Hence Price’s decision. For people who make low five-figures, a bigger paycheck makes a meaningful difference in the emotional quality of their daily lives.

All this might also sound like validation for those of us who like to think the wealthy are all secretly miserable, or at least no happier than the rest of us. But that isn’t quite right. While Kahneman and Deaton found that $75,000 may have been the magic cutoff for cash’s ability to brighten our daily lives, the results changed when survey takers were asked to rate their degree of life satisfaction in the abstract. Given a chance to sit back and ponder, people with more money tended to evaluate their lives more positively. And there didn’t seem to be any point where an extra dollar stopped making a difference.

You can see the distinction between money’s power to influence our daily emotional experience and its influence on how we view our station in life more broadly in the graph below. The measures of mood all peak and flatten out once people reach about $75,000. Life satisfaction, on the other hand, simply climbs with income, albeit a bit more slowly once people start earning around six figures. “Beyond $75,000 in the contemporary United States,” the authors write, “higher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress, although higher income continues to improve individuals’ life evaluations.” So money can’t make us infinitely more joyful. But it might be able to make us infinitely more content.

Kahneman and Deaton

This finding has been echoed in work by economists Betsey Stevenson and Justin Wolfers, who looked at differences in life satisfaction both internationally and within individual countries, and found that there was no cutoff where additional income seemed to stop making people more pleased with themselves. “We find no evidence of a satiation point,” they write. Still, I doubt knowing that would make the employees of Gravity Payments any less thrilled.