Raising Happiness in Poorer Countries: Will Economic Growth Do the Job? Richard A. Easterlin October...

Raising Happiness in Poorer Countries: Will

Economic Growth Do the Job?

Richard A. EasterlinOctober 2011

1

(With help from Laura Angelescu-McVey, Robson Morgan, Heinz-Henry Noll, Anke Plagnol, Onnicha Sawangfa, Malgorzata Switek, Jacqueline Smith Zweig)

Growth and Happiness

In less developed countries (LDCs) rapid economic growth does not raise the growth rate of Happiness.

2

Growth and Happiness

In less developed countries (LDCs) rapid economic growth does not raise the growth rate of Happiness.

This finding is the same as that for the developed countries (DCs), and for eastern European countries transitioning from socialism to capitalism (TCs).

2

LDC Evidence

Long term trends in:1. 17 Latin American countries, 1994-2006

(Latinobarometro)

3

LDC Evidence

Long term trends in:1. 17 Latin American countries, 1994-2006

(Latinobarometro)

2. 9 countries, 15-33 years, scattered across three continents (World Values Survey)

3

LDC Evidence

Long term trends in:1. 17 Latin American countries, 1994-2006

(Latinobarometro)

2. 9 countries, 15-33 years, scattered across three continents (World Values Survey)

3. China, 1990-2010 (Real per capita income doubling in less than 10 years)

3

China (1)World Values Survey, 1990-2007

(scale 1-10)

4

(All things considered, how satisfied are you with your life as a whole these days? Please use this card to help with your answer.)

1 ‘Dissatisfied’ 2 3 4 5 6 7 8 9 10 ‘Satisfied’

1990 1995 2000 2005 2010

(urban pop)

(total pop)

China (2)Gallup, 1997-2004

(1- 4 scale)

5

(Overall, how satisfied or dissatisfied are you with the way things are going in your life today? Would you say you are: 4 = Very satisfied; 3 = Somewhat satisfied; 2 = Somewhat dissatisfied; 1 = Very dissatisfied?)

China (3)Gallup, 1999-2010

6

(Please imagine a ladder with steps numbered from 0 at the bottom to 10 at the top. Suppose we say that the top of the ladder represents the best possible life for you, and the bottom of the ladder represents the worst possible life for you. On which step of the ladder would you say you personally feel you stand at this time?)

1-10 scale 0-10 scale

Q. If rapid growth of income doesn’t in itself raise happiness, can anything be done to increase happiness?

7

LT Relation

Q. If rapid growth of income doesn’t in itself raise happiness, can anything be done to increase happiness?

A. Public policy.

7

LT Relation

Some time series evidence from TCs

8Note: No LT change in Life Satisfaction, 1990-1999

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

Dwelling 6.93 7.36 +0.43

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

Dwelling 6.93 7.36 +0.43

Standard of living 6.34 6.63 +0.29

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

Dwelling 6.93 7.36 +0.43

Standard of living 6.34 6.63 +0.29

Household income 5.52 5.61 +0.09

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

Dwelling 6.93 7.36 +0.43

Standard of living 6.34 6.63 +0.29

Household income 5.52 5.61 +0.09

And yet…

(0-10 scale)

9

Satisfaction with various areas (“domains”) of life: Former GDR

1990 1999

Positive changes: (pre-transition) (post-transition) Change

Satisfaction with:

Environment 3.11 6.47 +3.36

Goods availability 3.16 6.20 +3.04

Dwelling 6.93 7.36 +0.43

Standard of living 6.34 6.63 +0.29

Household income 5.52 5.61 +0.09

And yet…

Satisfaction 6.57 6.55

(0-10 scale)

9

Life -0.02

Satisfaction with various areas (“domains”) of life: Former GDR

(Pre-transition) (Post-transition)

Negative changes: 1990 1999 ChangeSatisfaction with:

Health 6.62 6.20 -0.42

10

Satisfaction with various areas (“domains”) of life: Former GDR

(Pre-transition) (Post-transition)

Negative changes: 1990 1999 ChangeSatisfaction with:

Health 6.62 6.20 -0.42

Work 7.23 6.48 -0.75

10

Satisfaction with various areas (“domains”) of life: Former GDR

(Pre-transition) (Post-transition)

Negative changes: 1990 1999 ChangeSatisfaction with:

Health 6.62 6.20 -0.42

Work 7.23 6.48 -0.75

Childcare 7.54 6.48 -1.06

10

Satisfaction with various areas (“domains”) of life: Former GDR

(Pre-transition) (Post-transition)

Negative changes: 1990 1999 ChangeSatisfaction with:

Health 6.62 6.20 -0.42

Work 7.23 6.48 -0.75

Childcare 7.54 6.48 -1.06

Net balance

10

Satisfaction with various areas (“domains”) of life: Former GDR

(Pre-transition) (Post-transition)

Negative changes: 1990 1999 ChangeSatisfaction with:

Health 6.62 6.20 -0.42

Work 7.23 6.48 -0.75

Childcare 7.54 6.48 -1.06

Net balance

Satisfaction 6.57 6.55 -0.02

10

Life

A check: Satisfaction with various domains of life: Hungary

Domain 1992 1997 Change

Standard of living 4.6 4.5 -0.1

Household income 3.6 3.4 -0.2

(0-10 scale)

11

A check: Satisfaction with various domains of life: Hungary

Domain 1992 1997 Change

Standard of living 4.6 4.5 -0.1

Household income 3.6 3.4 -0.2

Health 6.4 5.8 -0.6

Home 7.1 6.5 -0.6

Work 7.4 6.7 -0.7

(0-10 scale)

11

Lesson from TCs

Money (Material living level) isn’t everything.

Public policies regarding Family life, Health, Job Security matter.

12

13

Does public policy matter?

Point-of-time test: Compare European countries with similar economic conditions, but different policies – Does Happiness differ?

13

Does public policy matter?

European Countries with Similar Economic Conditions, Different

Public Policies

Group A: Welfare States - Denmark, Sweden, Finland

Group B: France, UK, Germany, Austria

14

Macro-Economic Conditions, Groups A and B, 2007

Group A

Group B

GDP pc

($,000)

34.3

33.4

15

Macro-Economic Conditions, Groups A and B, 2007

Group A

Group B

GDP pc

($,000)

34.3

33.4

Inflation

rate

(%/yr)

2.1

2.1

15

Macro-Economic Conditions, Groups A and B, 2007

Group A

Group B

GDP pc

($,000)

34.3

33.4

Inflation

rate

(%/yr)

2.1

2.1

Unemp

rate

(%)

5.6

6.6

15

Public Policies in Groups A and BBenefit Generosity, 2002

Group A

Group B

Unemployment

Benefit

(0-15)

9.9

6.6

16

Generosity Index (Scruggs)

Public Policies in Groups A and BBenefit Generosity, 2002

Group A

Group B

Unemployment

Benefit

(0-15)

9.9

6.6

Sickness

Benefit

(0-15)

11.4

9.2

16

Generosity Index (Scruggs)

Public Policies in Groups A and BBenefit Generosity, 2002

Group A

Group B

Unemployment

Benefit

(0-15)

9.9

6.6

Sickness

Benefit

(0-15)

11.4

9.2

Pension

Benefit

(0-17)

12.5

10.4

16

Generosity Index (Scruggs)

Public Policies in Groups A and BBenefit Generosity, 2002

Group A

Group B

Unemployment

Benefit

(0-15)

9.9

6.6

Sickness

Benefit

(0-15)

11.4

9.2

Pension

Benefit

(0-17)

12.5

10.4

16

Overall

Benefit

(0-47)

33.8

26.2

Generosity Index (Scruggs)

Public Policies in Groups A and BBenefit Generosity, 2002

Group A

Group B

Unemployment

Benefit

(0-15)

9.9

6.6

Sickness

Benefit

(0-15)

11.4

9.2

Pension

Benefit

(0-17)

12.5

10.4

16

Overall

Benefit

(0-47)

33.8

26.2

Income

replacement

rate*

(OECD)

38.0

27.4

Generosity Index (Scruggs)

* Di Tella, R., MacCulloch, R.J. and Oswald A.J. (2003). The Macroeconomics of Happiness. The Review of Economics and Statistics, 85(4): 809-827.

17

Public Policies in Groups A and BRespondents’ Ratings of Government

Services, (1-10 scale)(In general, how would you rate the quality of each of the following PUBLIC services in [your country]?)

Group A

Group B

17

Health

7.4

6.8

Public Policies in Groups A and BRespondents’ Ratings of Government

Services, (1-10 scale)(In general, how would you rate the quality of each of the following PUBLIC services in [your country]?)

Group A

Group B

17

Health

7.4

6.8

Education

7.8

6.6

Family life

Public Policies in Groups A and BRespondents’ Ratings of Government

Services, (1-10 scale)(In general, how would you rate the quality of each of the following PUBLIC services in [your country]?)

Group A

Group B

17

Health

7.4

6.8

Education

7.8

6.6

Care of:

children elderly

7.6 6.5

6.5 6.0

Family life

Public Policies in Groups A and BRespondents’ Ratings of Government

Services, (1-10 scale)(In general, how would you rate the quality of each of the following PUBLIC services in [your country]?)

Group A

Group B

17

Health

7.4

6.8

Education

7.8

6.6

Care of:

children elderly

7.6 6.5

6.5 6.0

Public

pension

6.3

5.1

Family life

Public Policies in Groups A and BRespondents’ Ratings of Government

Services, (1-10 scale)(In general, how would you rate the quality of each of the following PUBLIC services in [your country]?)

Trust in Government, Groups A and B

Respondents’ ratings, 1-10 scale

18

(Please tell me how much you personally trust each of the following institutions.)

Trust in Government, Groups A and B

Respondents’ ratings, 1-10 scale

Group A

Group B

Government

6.3

5.0

18

(Please tell me how much you personally trust each of the following institutions.)

Trust in Government, Groups A and B

Respondents’ ratings, 1-10 scale

Group A

Group B

Government

6.3

5.0

Political

parties

5.7

4.2

18

(Please tell me how much you personally trust each of the following institutions.)

Trust in Government, Groups A and B

Respondents’ ratings, 1-10 scale

Group A

Group B

Government

6.3

5.0

Political

parties

5.7

4.2

Legal

system

7.4

5.8

18

(Please tell me how much you personally trust each of the following institutions.)

Satisfaction with Work, Health, Family Life

Groups A and B, 2007

19

(scale 1-10)(Could you please tell me … how satisfied you are with each of the following items…)

Satisfaction with Work, Health, Family Life

Groups A and B, 2007

19

(scale 1-10)

Group A: Denmark, Sweden, FinlandGroup B: France, UK, Germany, Austria

Group A

Group B

Work

8.0

7.2

(Could you please tell me … how satisfied you are with each of the following items…)

Satisfaction with Work, Health, Family Life

Groups A and B, 2007

19

(scale 1-10)

Group A: Denmark, Sweden, FinlandGroup B: France, UK, Germany, Austria

Group A

Group B

Work

8.0

7.2

Health

7.9

7.4

(Could you please tell me … how satisfied you are with each of the following items…)

Satisfaction with Work, Health, Family Life

Groups A and B, 2007

19

(scale 1-10)

Group A: Denmark, Sweden, FinlandGroup B: France, UK, Germany, Austria

Group A

Group B

Work

8.0

7.2

Health

7.9

7.4

Family Life

8.6

8.0

(Could you please tell me … how satisfied you are with each of the following items…)

Satisfaction with Work, Health, Family Life

Groups A and B, 2007

19

(scale 1-10)

Group A: Denmark, Sweden, FinlandGroup B: France, UK, Germany, Austria

Group A

Group B

Work

8.0

7.2

Health

7.9

7.4

Family Life

8.6

8.0

LIFE

SAT (H)

8.4

7.2

(Could you please tell me … how satisfied you are with each of the following items…)

Conclusion from Test

Although Groups A and B have similar economic conditions, Happiness is higher in Group A, where public policies regarding work, health, and family are more generous and comprehensive.

20

Is Social Insurance Affordable in Today’s LDCs? (1)

21

Is Social Insurance Affordable in Today’s LDCs? (1)

The Start of “Social Insurance:” Germany, 1880s

Compulsory state Year

Insurance for: started

Sickness 1883

Industrial accidents 1884

Pensions 1889

21

Is Social Insurance Affordable in Today’s LDCs? (2)

Level

GDP per capita

in 2005 dollars

Germany, c. 1880 3200

22

of

Is Social Insurance Affordable in Today’s LDCs? (2)

Level

GDP per capita Percent

in 2005 dollars of LDC

Germany, c. 1880 3200 population

LDCs, 2008 >3200

<3200 26

22

of

74

Is Social Insurance Affordable in Today’s LDCs? (2)

Level

GDP per capita Percent

in 2005 dollars of LDC

Germany, c. 1880 3200 population

LDCs, 2008 >3200

<3200 26

(>6400) (43)

22

of

74

Is Social Insurance Affordable in Today’s LDCs? (3)

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs? (3)

Germany, 1880s 1.8

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs? (3)

Germany, 1880s 1.8

All LDCs, 2000-2008 5.1

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs? (3)

Germany, 1880s 1.8

All LDCs, 2000-2008 5.1

China 9.7

India 6.4

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs? (3)

Germany, 1880s 1.8

All LDCs, 2000-2008 5.1

China 9.7

India 6.4

East Asia except China 4.8

South Asia except India 3.8

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs? (3)

Germany, 1880s 1.8

All LDCs, 2000-2008 5.1

China 9.7

India 6.4

East Asia except China 4.8

South Asia except India 3.8

Middle East North Africa 3.0

Latin America 2.7

Sub-Saharan Africa 2.7

23

Growth Rate,GDP pc

Is Social Insurance Affordable in Today’s LDCs?

Conclusion: Countries accounting for ¾ of LDC population have both:

a higher level of GDP pc, and

a higher growth rate of GDP pc

than Germany in the 1880s when it started social insurance programs.

24

Is Social Insurance Affordable in Today’s LDCs?

Conclusion: Countries accounting for ¾ of LDC population have both:

a higher level of GDP pc, and

a higher growth rate of GDP pc

than Germany in the 1880s when it started social insurance programs.

Social insurance is affordable in most LDCs.

24

Is Social Insurance Affordable in Today’s LDCs?

Conclusion: Countries accounting for ¾ of LDC population have both:

a higher level of GDP pc, and

a higher growth rate of GDP pc

than Germany in the 1880s when it started social insurance programs.

Social insurance is affordable in most LDCs.

Public policy in LDCs could increase H!24

Thank you

and

Be happy!

25

Which of the following situations would you prefer, A or B?

A.  Your income increases by $1,000; the

income of everyone else stays the same.

B.  Your income increases by $2,000; the

income of everyone else increases by

$4,000.

26

Imagine you are 38 years old and are offered a new job in a field you like. The job pays 15 per cent more than your present job. It will also require more work hours and take you far away from your family more often. What is the likelihood you would take the job?

1. Very likely

2. Somewhat likely

3. Somewhat unlikely

4. Very unlikely

27

BEL

NLDLUXFRA

ITA

DEUGBR

NIRL

IRLDEN

GRE

POR

SPA

NORUSACAN

AUSSlope: NS(n = 17)

-.1

-.0

50

.05

.1A

nnu

al C

han

ge in

LS

1 3 5Annual Growth Rate of GDPpc (%)

17 DEVELOPED COUNTRIES(21 - 34 YEARS)

The fitted regression is: y = -0.001 + 0.002x (adjusted R2 = 0.006); t-stats in parentheses. (-0.05) (0.31)

Longer Term RelationshipACTUAL

28

The fitted regression is: y = 0.025 - 0.009x (adjusted R2 = 0.229); t-statistics in parentheses. (2.62) (-1.63)

Longer Term Relationship

29

ACTUAL

ARG

BRA

CHI

MEX

CHN

KOR

TUR

SAFRJAP

Slope: NS(n = 9)

-.1

-.0

50

.05

.1A

nnu

al C

han

ge in

LS

0 2 4 6 8 10Annual Growth Rate of GDPpc (%)

9 DEVELOPING COUNTRIES(15 - 33 YEARS)

The fitted regression is: y = 0.033 - 0.004x (adjusted R2 = 0.168); t-stats in parentheses. (2.24) (-1.19)

Longer Term Relationship

30

ACTUAL

Longer Term Relationship

BEL

NLDLUXFRA

ITA

DEUGBR

NIRL

IRLDEN

GRE

POR

SPA

NORUSACAN

AUS

POL

HUN

EST

LAT

LIT

RUS

GDR

CZE

SVK

BUL

ROM

ARG

BRA

CHI

MEX

CHN

KOR

TUR

SAFRJAP

Slope: NS(n = 37)

-.1

-.0

50

.05

.1A

nnu

al C

han

ge in

LS

-1 0 1 2 3 4 5 6 7 8 9 10Annual Growth Rate of GDPpc (%)

17 DEVELOPED, 11 TRANSITION,AND 9 DEVELOPING COUNTRIES

(12 - 34 YEARS; MN = 22)

The fitted regression is: y = 0.018 - 0.003x (adjusted R2 = 0.069); t-stats in parentheses. (3.07) (-1.61) 31

ACTUAL

The fitted regression is: y= -.255x + .012 (Adj R2= -0.05); t-stats in parentheses (0.5) (1.42)

Slope: NS

(n=17)

32

Longer Term RelationshipACTUAL

LT Relation: Common Mistake

It is easy to mistake ST relation for LT by looking at relation of H to Y in Recession or Expansion (solid lines, a positive relation).

Recession Expansion

33

LT Relation: Common MistakeRecession Expansion

It is easy to mistake ST relation for LT by looking at relation of H to Y in Recession or Expansion (solid lines, a positive relation).For LT relation look at trends (broken lines, a nil relation).

33

Confusing ST with LT Relation: Example 1

Russian Federation Life Satisfaction, c. 1989 – 2005, and Index of Real GDP, Annually 1989 - 2005

34

Full Cycle, 1990-2005

Confusing ST with LT Relation: Example 1

Russian Federation Life Satisfaction, c. 1989 – 2005, and Index of Real GDP, Annually 1989 - 2005

34

contraction only

Full Cycle, 1990-2005 Contraction Phase Only, 1990-98

Confusing ST with LT Relation: Example 2

Slovenia Life Satisfaction, c. 1991 – 1999, and Index of Real GDP, Annually 1991 - 1999

35

Full Cycle, 1989-2000

Confusing ST with LT Relation: Example 2

Slovenia Life Satisfaction, c. 1991 – 1999, and Index of Real GDP, Annually 1991 - 1999

35

expansion only

Full Cycle, 1989-2000 Expansion Phase Only, 1991-2000