Measuring Well-Being

I just came across an interesting paper by David Blanchflower and Andrew Oswald entitled “Happiness and the Human Development Index: The Paradox of Australia“. The paper raises a question of crucial importance to economists who think about development and growth issues: what measures should we use to gauge whether any particular group of people are better or worse off than people in another place or another time?

The paper by Blanchflower and Oswald uses survey data to try to estimate how happy people are in various countries, and to compare their reported happiness with their economic well-being as estimated by traditional measures such as income or the World Bank’s “Human Development Index”. They find substantial variations between the official economic statistics and how happy people say they feel.

The NBER digest provided a bit of non-technical discussion about the paper last month:

Some recent findings from statistical happiness research include the following, the authors note in their paper:

1. 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.

2. Nations as a whole, at least in the West, do not seem to get happier as they get richer.

3. Happiness is U-shaped in age – that is, it falls off for a while, then stabilizes, and rises later in life. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. More educated people report higher levels of happiness, even after taking account of income.

4. At least in industrial countries such as France, Britain, and Australia, the structure of a happiness equation looks the same.

5. There is adaptation. Good and bad life events wear off – at least partially – as people get used to them.

6. Comparisons matter a great deal. Reported well being depends on a person’s wage relative to an average or “comparison” wage. Wage inequality depresses reported happiness in a region or nation. But the effect is not large.

I find these results quite compelling. I’ve often wondered how much happier the average middle-class person in the United States is today compared to 1970 or even 1950. It would take some convincing to persuade me that they are substantively happier. Yet the economic profession’s standard measures of well-being (income, GDP, hourly compensation, etc.) show tremendous gains over time for the average person.

One natural question that arises from this line of thinking might be this: if the measured economic gains that the average person has enjoyed over the past, say, 50 years aren’t making people happier, should economists and policy-makers even bother worrying about them? Perhaps we should stop even trying to increase GDP or income or compensation, and focus instead on spiritual development, or the environment, or being nice to animals, or something else.

But I suppose that trying to increase income and GDP and so forth still makes sense, because even if they don’t directly make people happier, those measures of economic well-being do give people more possibilities, with which you can do what you want. However, this paper does make you wonder a bit about how many important contributors to well-being our official statistics are ignoring…

Kash

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