What is the appropriate goal of economic policy? From 1950s to now, this measurement of economic performance has been steadily changing from monetary to non-monetary aspects -- increasing per capita incomes, to broad-based GDP growth, to human development, to sustainable environment, gender equity, development as freedom and empowerment, poverty reduction, equity in opportunities, and more recently, to happiness.
The ‘economics of happiness’ is an approach to assessing subjective welfare which combines the techniques used by economists and psychologists. Up to a certain threshold, increases in incomes result in increases in happiness, but beyond a certain level, further increases in incomes do not lead to higher levels of happiness. More specifically, recent findings from such statistical ‘happiness’ research include the following:
For a person, money does buy a reasonable amount of happiness. But it is useful to keep this in perspective. Very loosely, for the typical individual, a doubling of salary makes a lot less difference than life events like marriage.
For a nation, things are different. Whole countries -- at least in the West where almost all the research has been done -- do not seem to get happier as they get richer.
Happiness is U-shaped in age. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. Education is associated with high reported levels of happiness even after controlling for income.
The structure of a happiness equation has the same general form in each industrialized country (and possibly in developing nations, though only a small amount of evidence has so far been collected). In other words, the broad statistical patterns look the same in France, Britain and Australia.
There is some evidence that the same is true in panels of people, ie. in longitudinal data. Particularly useful evidence comes from looking at windfalls, like lottery wins.
There is adaptation. Good and bad life events wear off -- at least partially -- as people get used to them.
Relative things matter a great deal.
First, in experiments, people care about how they are treated compared to those who are like them, and in the laboratory will even pay to hurt others to restore what they see as fairness. Second, in large statistical studies, reported well-being depends on a person’s wage relative to an average or ‘comparison’ wage. Third, wage inequality depresses reported happiness in a region or nation (controlling for many variables), but the effect is not large.
Newer measures of well-being are also constructed in some countries using survey questions on happiness, family satisfaction, job satisfaction, work stress, and tiredness.
- Advances in Development Economics