Gini index and happiness (Part One)

For those who don’t remember or don’t know it, the Gini index (or Gini coefficient) is a statistical tool used to measure economic inequality within a population. A zero (0) index represents perfect equality, where every single person or household earns the exact same amount of money. A one (1) index stands for perfect inequality, where a single person earns all the income and everyone else earns nothing. 

It’s not a measure you’ll see on your News feed or hear from your politician! I’ve been wondering if there was any correlation between what is published as “Happiness Index” and that measure of inequality. Obviously, there’s a correlation between a country’s Happiness Index and its Gini Index. But the relationship is not linear. 

Research shows three different patterns depending on the country, culture, and level of inequality. A large cross‑national study of 30 countries found that high inequality correlates with fewer happy people and more unhappy people. The effect is similar in magnitude to the effect of median income on happiness. As we had guessed, this is the “expected direction”: more inequality means less happiness. 

This said the relationship is NOT always linear. Major studies have found an inverted U‑shaped curve between inequality and happiness. When inequality is low, people generally see it as a sign of opportunity and upward mobility and believe that their happiness can increase. 

However, when inequality becomes high, jealousy, frustration, and reduced mobility dominate people’s lives and their happiness decreases. This pattern was confirmed in US longitudinal data and European cross‑national data. 

Therefore we could say that a little inequality can increase happiness but too much inequality reduces it. Another study shows that happiness depends on how individuals compare themselves to similar others (same gender, ethnicity, etc.). In that situation, people who can make both upward and downward comparisons feel happier in states where inequality is high, because their relative position is clearer. When inequality is low, comparisons are less meaningful, and this effect disappears. 

This means inequality affects happiness through psychology, not just economics. As we might expect, the effect of inequality on happiness varies strongly by region. Some regions show a strong negative correlation while others show weaker or mixed effects depending on social norms, welfare systems, and mobility expectations. In conclusion, there is a correlation, but it’s complex: 

When inequality is low, happiness can rise and people interpret inequality as a sign of opportunity but when inequality is high, happiness falls as people feel stuck, jealous, or pessimistic about mobility; the relationship depends on social comparison, culture, and expectations. 

This explains why Nordic countries (low Gini, high happiness) score well, while countries with very high inequality often score poorly — but also why some moderately unequal countries can still report high happiness. Next time, we’ll dig a bit deeper and take a look at some individual countries...