… and the Pursuit of Happiness - Institute of Economic Affairs

… and the pursuit of happiness
subjective wellbeing
Figure 5
Life Satisfaction, 0−10 Scale
0.50
0.25
0.00
−0.25
−0.50
0.50
0.25
0.00
−0.25
−0.50
0.50
0.25
0.00
−0.25
−0.50
Changes in life satisfaction and economic growth in Europe:
Eurobarometer Survey
BELGIUM
Correlation = −0.31
FRANCE
Correlation = 0.63
NETHERLANDS
Correlation = 0.41
DENMARK
IRELAND
Correlation = 0.73
Correlation = 0.30
UNITED KINGDOM
Correlation = 0.48
GREECE
Correlation = 0.22
Correlation = 0.81
Notes: Data are aggregated by first standardising individual-level data to have mean zero and unit
standard deviation, and then taking country-year averages of the standardised values. The life
satisfaction question asks, ‘On the whole, are you very satisfied, fairly satisfied, not very satisfied, or
not at all satisfied with the life you lead?’
relationship between life satisfaction and growth, and six of the
nine slopes are statistically significantly positive. The slopes range
from –0.25 in Belgium to 0.68 in Italy. This reanalysis not only
suggests a positive relationship between income and growth, but
also hints at the difficulty of isolating this relationship when data
Source: Statistics from Institute for Fiscal Studies (2010)
are scarce.
The positive relationship between life satisfaction and
economic growth is not a feature of Europe alone. The World
Values Survey covers more countries, and at very different levels
ITALY
WEST GERMANY
8 16 32 8 16 32 8 16 32
Real GDP per capita (thousands of dollars, log scale)
Correlation = 0.19
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of development. This allows us to see whether populations
become more satisfied as their countries transition from low to
moderate income as well as from moderate to high income. The
evidence from this data suggests that there is a positive association
between changes in subjective wellbeing and changes
in income. It also seems clear, however, that life satisfaction is
more sensitive to short-run changes in income than to long-run
changes, suggesting that business-cycle variation may be driving
some of the association. An alternative interpretation is that,
over time, individuals adapt to their new circumstances or their
aspirations change, so that, even though their material welfare is
increasing their subjective wellbeing, gains from these increases
recede over time.
There are also some interesting outliers from an examination
of the broader data. Korea, for example, had only a modest change
in subjective wellbeing and a very large increase in GDP; Hungary
experienced very little growth, but had a serious decline in life
satisfaction. In the regression results reported below, we include
these outliers, but it is clear that excluding them could change our
estimates. Overall, our work provides strong evidence of a relationship
between economic growth and growth in wellbeing. The
satisfaction–income gradient is 0.51 in the World Values Survey
and 0.17 in the Eurobarometer, as we report in column 3 of Table
1. Our data reject the hypothesis that it is relative rather than
absolute income which determines wellbeing. The results are not
substantially affected by outliers.
In obtaining these estimates, however, we have drawn on
all the variation in GDP in our sample, including possibly highfrequency
changes to which individuals do not have a chance to
adapt. If adaptation occurs slowly, it would be better to focus on
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