Inequality has a huge impact on wellbeing, more so than even absolute income levels. A lot of what we feel about how we are doing, depends on how those around us are doing and our relative standing.
President Obama has been turning attention to inequality lately, and development measures have long taken it into account in terms of general economic wellbeing. And a number of recent studies from psychology, behavioral economics, and management not only help explain this, but point the way toward more optimal solutions:
Mat Richtel reports on recent research that suggests "a deeply rooted instinct to earn more than can possibly be consumed, even when this imbalance makes us unhappy" and that higher income levels may promote "mindless accumulation." In an experimental setting (and uses pieces of Dove chocolate as pay), researchers found that higher earners would work harder to accumulate more chocolate than they would be able to eat (during a limited period after the round of play), while low earners were content to work at a more relaxed pace. The pull of endless accumulation, it seems, can be so powerful as to overwhelm choices that might result in greater overall wellbeing.
Adam Davidson, in his excellent column in the NY Times Magazine argues that "paying [workers] and treating them better, will often yield happier
customers, more engaged workers and--surprisingly--larger corporate
profits." Citing research by Marshall Fisher (Wharton School) and Zeynep Ton (M.I.T.), he shows that good paying jobs are not only better for workers but also in many ways for the bottom line, to less turnover to more engagement.