Laura Rowley Money & Happiness

Economist Carol Graham studies globalization, market reforms, income mobility, and growth in developing societies. A senior fellow at the Brookings Institution and a professor at the University of Maryland, Graham doesn't think of herself as a happiness researcher.

But then she discovered that something funny was happening on the way up the economic ladder.

Success Is Relative

While studying economic progress in Peru and Russia, Graham found herself repeatedly stumbling over a group of unhappy success stories. For example, she was surprised to find that nearly half of Peruvian workers with the most upward income mobility reported that their economic situation was negative, or very negative, compared to 10 years prior.

Graham conducted an analysis based on comparable data for Russia, and discovered an even higher percentage of what she now calls "frustrated achievers." Other surveys have identified a similar pattern in urban China, she notes.

"By objective terms, they performed well in the labor market," says Graham, who presented her research on frustrated achievers at a conference at Italy's Siena University last month. "But their perception was that everyone has more than they do. They were concerned about relative income differences."

Mobility Changes Everything

Asked to rank themselves on a theoretical nine-step economic ladder, frustrated achievers placed themselves on a lower rung than their actual incomes would justify. And despite their successful climb out of poverty, they had a higher fear of unemployment than people below them on the ladder.

Graham speculated that economic volatility might be cause. Mobility was indeed unstable; in the period studied, 11 percent of middle-class Peruvians tumbled all the way back into extreme poverty. But such reversals of fortune weren't a problem for the frustrated achievers, who had less income volatility as a group.

So why were these up-and-comers unhappy? Graham suggests that their problems stemmed from "aspirations and reference norms" -- or, to use the vernacular, they couldn't help comparing themselves to the Joneses.

"Even though their income goes up by 20 to 25 percent, people's perception of where they are on the economic ladder matters even more to their happiness," she says. "We all assume mobility is a good thing -- but everything changes with your mobility, including your aspirations."

Not Keeping Up with the Joneses

The frustrated achievers studied tended to live in urban areas, where they were more likely to encounter "big visible winners in an unequal society at times of rapidly changing economics," says Graham.

In a separate study of 18,000 people across Latin America, Graham looked at their exposure to media -- where they got their news and how often. "People who had higher scores on the media index were much more likely to think that distribution of income in their country was unfavorable," she says. "The more you know, the more relatively deprived you feel."

The importance placed on relative income and reference groups can lead to an ever-rising bar of perceived needs, explains Graham. Boston College sociologist Juliet Schor, for instance, cites repeated surveys showing that more than half of Americans -- the richest population in the world -- say they can't afford everything they really need.

That's because, like the frustrated achievers in developing countries, frustrated achievers here at home don't look at the global picture. They look at the neighbors.

Misplaced Misfortune

Harvard researcher Erzo F.P. Luttmer examined geographic areas of roughly 15,000 people. All other things being equal, such as satisfaction with one's health and marital status, Americans who earned less than their neighbors were more likely to be unhappy, according to his paper published in the Quarterly Journal of Economics.

Moreover, researchers Andrew Oswald of England's Warwick University and David Blanchflower of Dartmouth found that when people make relative-income comparisons, they frequently look at those who have more -- and get upset by the unfavorable contrast. They also found that even if our incomes are rising, we're disappointed if the incomes of others are rising more.

Author Alain de Botton described the tyranny of comparison in his 2004 book "Status Anxiety": "If we are made to live in a draughty, insalubrious cottage and bend to the harsh rule of an aristocrat occupying a large and well-heated castle, and yet we observe that our equals all live exactly as we do, then our conditions will seem normal ... If however, we have a pleasant home and a comfortable job and learn through ill-advised attendance at a school reunion that some of our old friends ... now reside in houses grander than ours, bought on salaries they are paid in more enticing occupations than our own, we are likely to return home nursing a violent sense of misfortune."

Or, as John Stuart Mill observed in the 19th century, "Men do not desire to be rich, but to be richer than other men."

Not Everyone Can Be Bill Gates

The biggest difference between frustrated achievers in developing countries and those in the United States is in how inequality is viewed. Americans clearly live a media-saturated culture, where many people know that the average CEO makes more than 250 times the average worker's pay. But inequality is rarely discussed.

"Inequality matters to people because of what it signals," says Graham. "In Latin America, it signals persistent disadvantage for the poor, even though the data suggests there's more mobility than you would think. In the U.S., inequality signals the perception of opportunity -- everyone can be Bill Gates."

That's despite data suggesting there's less mobility in the United States than you might expect. Studies show that U.S. mobility is roughly on par with that of Europe. The newly formed Economic Mobility Project, a collaborative effort by both liberal and conservative think tanks, finds that U.S. incomes are stagnating, and the current generation of 30-something men has fallen behind their fathers' earnings.

Nevertheless, Americans don't focus on inequality largely because they tend to have enormous faith in their prospects. Consider a study by Princeton economist Roland Benabou: He found that more than half of Americans think they'll be above the median income in the future (even though, obviously, that's mathematically impossible).

Keep on the Sunny Side

Before trying to slap some collective sense into the nation's cheerfully deluded optimists, it's worth noting that happy people actually do better economically.

Graham, for instance, studied the happiness effect among Russians. "Happier people earned more money and were healthier five years later," she says. "One criticism of this approach is that all we are seeing is people's ability to predict the future -- they are happier in 1995 because they predict they would be wealthier in 2000." But the turmoil in Russia's economy makes it the perfect case study, says Graham: "How many Russians could predict how they would be doing in the year 2000?"

Separate studies find the same effect with happy Americans, who have more positive outcomes with work, relationships, and health, according to a bulletin published by the American Psychological Association.

Bottom line: To avoid being a frustrated achiever, don't compare your income to anything except your own goals. And look on the bright side. Otherwise, a negative attitude may eventually create a sour economic reality.