The 10 things economics can tell you about happiness

In April 2, 2012 I was invited by the Prime Minister of Bhutan  Jigme Y. Thinley to a high-level meeting at the United Nations in New York to develop a new economic paradigm based on well-being and happiness. I was privileged to be part of this meeting that drew 600 delegates, other leaders and scholars from around the world. Attending the conference were, among others, my economic mentor John Helliwell (UBC), Robert Putnam, Richard Layard, Jeffrey Sachs, Joseph Stiglitz, and Costa Rican president Laura Chincill, Bhutan’s Prime Minister Jigmi Thinley.

We discussed how countries can begin to adopt a broader suite of measure of progress that goes beyond the conventional GDP measure of economic growth. We talked about how could track both happiness and well-being in addition to conventional economic indicators.

At that meeting the World Happiness Report was released. This report showed that:

  • Denmark, Norway, Finland and the Netherlands, and Canada earned the highest scores (7.6 out of 10) for life evaluation.
  • Average happiness in the United States has not risen during times of strong economic growth.
  • Research suggests once baseline happiness has been met, happiness varies more with the quality of human relationships rather than with income
  • Political freedom and strong social networks and an absence of corruption are more important than income in regard to what makes people happy.
  • External (e.g., income, work, community, governance) and personal (e.g., health, family, education, age) causes of happiness and misery based on 30 years of research were discussed.
  • Absolute income is important in poor countries, but rich countries tend to place more importance on comparative income. Other factors with a strong impact on happiness include quality of work, social trust, freedom of choice, and political participation.
  • Regular collection of happiness data on a large scale can inform policy-making and help us identify what “deliverables” should be created to foster well-being.
  • There are three major happiness evaluation tools currently in use — the  Gallup World Poll (GWP), the World Values Survey (WVS), and the European Social Survey (ESS). These surveys focus on the responses to any combination of the following questions: “How happy are you now?,” “How happy were you yesterday?,” and, “How happy are you with your life as a whole these days?”

Conclusion: Create goals that work toward strong communities with high degrees of trust, high employment and quality of employment, improved mental and physical health, support of family life, and accessible, quality education. The foundation for better policy-making is tied to explaining happiness, measuring and analyzing happiness, and translating research on well-being into actionable resources.

10 Things Economics Can Tell Us About Happiness

Here is a good summary of the 10 things economics can tell us about happiness from the recent OECD new rankings of the happiest countries on each.

You will note from the graphic that country optimizing happiness with the lowest per capita GDP is Denmark and Finland. Both were ranked #1 and #2 in the World Happiness Report in terms of subjective well-being; Canada ranked 5th in the world in terms of subjective happiness.

The 10 Things Economics Can Tell Us About Happiness

By Derek Thompson

May 31 2012, 6:05 PM ET 41

Money can buy happiness, but up to what point? And does working more make us miserable? And will you be happier if you start your own company? Here’s what the research tells us…

Screen Shot 2012-05-31 at 3.56.33 PM.pngLast week, I shared the OECD’s brand new rankings of the happiest countries on earth. This week, let’s pull back the lens and consider the most important lessons about well-being from the mountainous piles of economic research distilled by the New Economics Foundation‘s excellent review. All caveats about the messiness of research bias and the usefulness of self-reported happiness surveys apply.

1) Generally speaking, richer countries are happier countries (see above). But since many of these rich countries share other traits — they’re mostly democracies with strong property rights traditions, for example — some studies suggest that it’s our institutions that are making us happy, not just the wealth. More on that in a second.

2) Generally speaking, richer people are happier people. But young people and the elderly appear less influenced by having more money.

3) But money has diminishing returns — like just about everything else. Satisfaction rises with income until about $75,000 (or perhaps as high as $120,000). After that, researchers have had trouble proving that more money makes that much of a difference. Other factors — like marriage quality and health — become more relatively important than money. It might be the case that richer people use their money to move to richer areas, where they no longer feel rich. Non-economists might chalk this up to the “keeping up with the Jones'” principle.

  • 3a) The diminishing-returns principle is true for entire countries, too… The “Easterlin Paradox” suggests that once a developed country passes a threshold average income, more growth doesn’t increase average reported happiness.
  • 3b) … but there might be exceptions — or the whole theory might be wrong!. Betsey Stevenson and Justin Wolfers, disagreeing with Easterlin in a widely-read paper, have showed that some countries, such as Japan and Italy, have clearly rising levels of well-being alongside rising GDP.

4) Income inequality reduces well-being, and higher public spending increases well-being. These conclusions have been reached many times … and called into question many times. Most interestingly, “perceived social mobility” might mitigate the effects of income inequality. If people think they can move up the income ladder, they’re willing to tolerate a larger equality gap.

5) Unemployment just makes you miserable. Across most surveys, nothing correlates with unhappiness more than unemployment, except perhaps for bad health. This effect is particularly strong among men in Great Britain, Germany, and the U.S. There is an odd silver lining: Being around lots of other unemployed people makes us feel better about not having a job. So high-unemployment regions can possibly “neutralize” the negative effects of unemployment — but that shouldn’t make you feel good about them.

6) Inflation makes you pretty unhappy, too. But its effect is weaker than unemployment. The mixed evidence seems to suggest that a volatile inflation rate decreases well-being, but in countries with generally stable prices, a little inflation has a small effect on happiness. And guess whose happiness inflation ruins the most? Right-wingers, apparently.

7) Working more hours makes you happier … until it makes you miserable. As workers move from part-time work to full-time work, they’re happier. But as they move from full-time work to Jesus-when-will-this-day-finally-end work, the joy of labor subsides. There seems to be an “inverse U-shaped relationship” between hours worked and self-reported well-being, although the precise figures differ across countries. Fascinatingly, one study found that, although working long regular hours correlates negatively with well-being, “working overtime has a positive effect on job satisfaction.” Go figure.

8) Commuters are less happy. The studies here are really interesting. Health scientists say that commuting can make you sick and die — not conducive to happiness. Daniel Kahneman’s research on female happiness found that while commuting, women experienced the “lowest ratio of positive to negative emotions during the day.” One study pegged the magic number at 22: If your commute is more than 22 minutes, there is an appreciable decline in reported well-being. Yet another study found that for every 10 minutes of additional commuting, community involvement falls by 10 percent.

9) Self-employed people are happier. When workers think they’re good at their job and that their bosses like them, they’re more satisfied. So it makes sense that when they are their own boss, they’re happier to work. A famous OECD study found that the self-employed “typically report higher levels of overall job satisfaction than the employed.” But another study suggests that only rich self-employed people are happier to be self-employed.

10) Debt sucks. The kind of debt matters. Mortgage debt doesn’t correlate much with happiness. Credit card debt does — in a negative way. Either way, high debt correlates strongly with anxiety and depression.

About Mark Anielski

I am an economic strategist and the author of the Economics of Happiness: Building Genuine Wealth, a book that provides a roadmap to the new economy of well-being and a life of purpose and meaning.
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