1.5 Happiness across countries: Easterlin Paradox
Economic growth has long been considered an important goal of economic policy, yet
in recent years some have begun to argue against further trying to raise the material
standard of living, claiming that such increases will do little to raise well-being. These
arguments are based on a key finding in the emerging literature on subjective well-
being, called the “Easterlin paradox,” which suggests that there is no link between the
level of economic development of a society and the overall happiness of its members. In
several papers Richard Easterlin has examined the relationship between happiness and
GDP both across countries and within individual countries through time. In both types
of analysis he finds little significant evidence of a link between aggregate income and
average happiness.
5
In contrast, there is robust evidence that within countries those with more income are
happier. Richard Layard offers an explanation: “people are concerned about their
relative income and not simply about its absolute level. They want to keep up with the
Joneses or if possible to outdo them.”
6
While leaving room for absolute income to
matter for some people, Layard and others have argued that absolute income is only
important for happiness when income is very low. Layard argues, for example, that
“once a country has over $15,000 per head, its level of happiness appears to be
independent of its income per head.”
7
Let me draw a conclusion. Economists have probably been wrong to believe that
economic growth makes societies happier. There is now an enormous amount of
evidence that it will not. It is still debated; there is a small amount of evidence against.
However, I would say the weight of the evidence is in line with Richard Easterlin‟s
paradox.
More broadly, policy in the coming century may need to concentrate much more on
non-materialistic goals. Probably we will have to concentrate on what we might call
GNH, Gross National Happiness, and not more on GDP.
5
Easterlin (1973, p. 4) summarizes his findings: “In all societies, more money for the individual typically
means more individual happiness. However, raising the incomes of all does not increase the happiness
of all. The happiness-income relation provides a classic example of the logical fallacy of composition,
what is true for the individual is not true for society as a whole”
6
Layard (2005a, p. 45)
7
Layard (2003. p. 17). For other arguments proposing a satiation point in happiness, see Veenhoven
(1991), Clark, Frijters, and Shields (2008), and Frey and Stutzer (2002)
8
Chapter 2
Measurement of Subjective or Objective
Well-Being
“For a long time, economists have assumed that it was sufficient to look at people‟s
choices to derive information about their well-being, and that these choices would
conform to a standard set of assumptions. In recent years, however, much research has
focused on what people value and how they act in real life, and this has highlighted
large discrepancies between standard assumptions of economic theory and real-world
phenomena. A significant part of this research has been undertaken by psychologists
and economists based on subjective data on people‟s reported or experienced well-
being.”
8
How can we know who is happy?
People have ready-made answers to many questions about themselves: they know their
name, their address and their party affiliation. But they generally do not know how
happy they are and they must construct an answer to that question whenever it is raised.
2.1 Subjective well-being
Chapter 2 discusses more deeply how people‟s well-being is empirically measured and
how these measures correlate with other manifestations of happiness, such as smiling,
or with unhappiness, such as committing suicide.
8
Stiglitz J. E., Sen A. and Fitoussi J. (2009): “Report by the commission on the Measurment of Economic
Performance and Social Progress”
9
2.1.1 Reported subjective well-being
Tibor Scitovsky with is book The Joyless Economy, published in 1976, argued that
most of the pleasures in life cannot be bought in markets, are not priced and are not for
sale.
“Statistical offices should incorporate questions to capture people‟s life evaluations,
hedonic experiences and priorities.”
9
Sometimes people do not know what makes them happy and what makes them
unhappy, people are not always able to choose the greatest amount of utility for
themselves.
Over optimism, according to which people in identifiable situations believe that
outcomes of events are better for them than for others. Thus, most persons
underestimate the probability of being involved in an accident or contracting cancer or
AIDS. Similarly, most people overestimate their capabilities. Thus, a large majority of
motorists believe that they belong to the top 20 percent of drivers, which is, of course,
objectively impossible. The same holds for their selves evaluation of their work
performance.
Limited ability to predict one‟s future tastes. An important case, already mentioned on
several occasions, is the adaptation to higher income, or rising aspiration levels, even
more striking is the inability to predict one‟s future preferences if one becomes
disabled. Most people think it preferable to die in an accident than to lose both legs or
both eyes. But studies of quadriplegics show that they are only slightly less happy than
healthy persons. After a difficult time of adjustment, the happiness of seriously disabled
victims rises again to a level close to the one before the accident. Studies suggest that
lottery winners are very happy after winning, but that their happiness levels revert back
to the original levels after some weeks
10
.
In the Golden Age of Greek philosophy, Aristotle defined happiness as the supreme
good. It is the only value that is final and sufficient; everything else is merely a means
to an end, and once happiness is attained, nothing else matters. But the absolute good
9
Stiglitz J. E., Sen A. and Fitoussi J. (2009): “Report by the commission on the Measurment of Economic
Performance and Social Progress”
10
Brickman, Coates and Janoff-Bulman, 1978
10
consists of doing well than of actual pleasures. A happy person is a moral person. In the
Christian Middle Ages, Thomas Aquinas defined the quality of human life in terms of
virtue, closeness to God and other personal qualities. Confucius emphasized the
relationship between people and therefore focused on the quality of life in society.
This is to say that every man has his personal definition of happiness, if he has it. Many
terms are used to denote happiness: subjective or reported well-being, satisfaction.
Through-out this paper, these terms are employed interchangeably. How can subjective
well-being be captured? Using physiological and neurobiological indicators, observed
social behavior, nonverbal behavior and surveys.
A satisfaction scale is included in the Eurobarometer Survey. In Europe, the
Eurobarometer Surveys have been collected for many years by the statistical office of
the European Union; it covers all member countries and therefore provides an excellent
data source. Many more well-being scales have been constructed. It is, however, futile
to discuss in general which of them is the best. Rather, what question and what scales
are best suited depends on the purpose for which they are to be employed.
2.1.2 Validity, consistency and comparability across nations
The validity of a measure requires that it reflects the concept it is intended to express.
Responses to happiness questions should thus reflect true inner feelings. Biases may
arise for several reasons:
No opinion: respondents may not have any clue about how happy they are
because they have never thought about this question
Distorted reporting: because of ego-defense mechanism, or because they
perceive it as socially desirable, respondents tend to overstate their level of
happiness or to understate it, as in the case of the “unhappy artist”
11
Some of these biases are random and hence do not affect aggregate cross-section
analysis. Other distortions can again be mitigated by an appropriate survey research
design.
Consistency refers to how well the inner feeling of happiness experienced by persons
corresponds to other observations of the same phenomenon. Subjective well-being
correlates with a large number of such observations. Compared to the average person,
people reporting to be more happy than average
Are rated to be more happy by spouses, other family members, friends and
associates
Are more often smiling during social interactions
Are more easily prepared to initiate social contacts
Are more ready to help other persons
Are less often absent from work
Are less involved in quarrels at work
Are more optimistic about the future
Are strikingly energetic, flexible and creative
Recall more positive than negative life events
Have a higher tolerance level of frustration
Are less likely to attempt to commit suicide
Are more healthy because the body‟s immune system fights diseases more
efficiently
Needs less psychological counseling
It has sometimes been claimed that well-being measures perform badly when used for
comparisons between countries. There may indeed be various kind of cultural bias in
reports of happiness. Reported happiness measures are certainly not ideal. They should
always look at with a critical eye. Nevertheless, one should at the sometime keep in
mind the following conditions:
12
For the questions posed by economists it is normally more important to have a
good representative sample and a sufficiently large volume of data than pure
precision
The quality of the happiness data should be compared to alternative concepts of
measuring people‟s level of living and well-being
The subjective well-being measures based on surveys do not claim to be objective, but
attempt a global assessment of the whole sphere of life. Relevant criteria for assessing
their usefulness are reliability, consistency and comparability across nations. It should,
moreover, be remembered that all social measures are imperfect.
2.1.3 Close relationship and marriage
Aristotle referred to man as a “social animal” to emphasize how important interpersonal
relationships are. To have an enduring, intimate relationship is one of the major goals of
most persons. To have friend, companions, relatives and to be part of a group, be it co-
workers or fellow church members, contribute to happiness.
Without any doubt, the two most important interpersonal relationships are marriage and
family. Marriage indeed raises happiness, as has been found in a large numbers of
studies for different countries and periods
11
. Married persons report greater subjective
well-being than persons who have never married, divorced, separated, or been widowed.
Does marriage cause happiness or does happiness promote marriage? A selection effect
cannot be ruled out. It seems reasonable to say that dissatisfied and introverted people
find it more difficult to find a partner.
The difference in happiness between married and never-married persons has fallen in
recent years. The “happiness gap” has decreased both because the never married
experienced increasing happiness and because the married have experienced decreasing
happiness
12
. This finding is consistent with people marrying later, divorcing more often,
and marrying less, as well as with the increasing number of unmarried partners, even
11
Diener et al. 2000
12
Lee, Soccombe, and Shenan, 1991
13
I
where there are children. Somewhat surprisingly, economic research on happiness has
found that second, third and fourth turn out to be less happy than first marriage
13
.
2.1.4 Intelligence, education and religion
General and President Charles de Gaulle of France is reported to have said that only
fools are happy. This corresponds to the picture of an intelligent afflicted with self-
doubt and even mental illness. Of which Friedrich Nietzsche is a typical example.
The presumed negative relationship between intelligence and subjective well-being has
been refuted by empirical research. The two appear to be essentially unrelated. Whether
particularly intelligent persons are happy depends on how successful they are in their
lives, and whether their higher aspirations are counterbalanced by corresponding
achievements.
The level of education, as such, bears little relationship with happiness. Education may
indirectly contribute to happiness by allowing a better adaptation to changing
environments. But it also tends to raise aspiration levels. It has, for instance, been found
that the highly educated are more distressed than the less educated when they are hit by
unemployment
14
.
Believing in God and happiness are positively related, but the effect is not large. Thus
Marx may have been right when he proclaimed that religion is an “opiate for the
masses” leading to higher feelings of well-being.
There are various reasons why religion raises happiness:
Church attendance is an important source of social support. Particularly for
people who have lost other kinds of support, such as older people and widows,
religious activities and the sense of communion experienced provide an effect
substitute
The feeling of being close to God and the belief in a afterlife provide existential
certainly and are a source of happiness
13
Blanchflower and Oswald, 2000
14
Clark and Oswald 1994
14
Religious people are better able to cope with adverse circumstances. A bad event
can better be overcome if it is attributed to the will of God
Church members are on average of better health, mainly because they behave
correspondingly: they drink and smoke less and are sexually less promiscuous.
There may also be reverse causality: happier people are more religious.
2.2 Biases in subjective well-being
It is worth considering some biases (or “tendencies”) in psychological measures of
subjective well-being. People do not think about their life satisfaction or level of
happiness in the same way they think about their mailing address or years of schooling.
When asked, they construct an answer on the spot. They often use rules of thumb for
providing their answers. They are also affected by their current mood and thoughts. In
an ingenious experiment to demonstrate the importance of transitory mood on reported
life satisfaction, Norbert Schwarz invited subjects to fill out a satisfaction questionnaire.
Before answering the questionnaire, however, he asked them to make a photocopy of
the questionnaire. For half of the subjects, a dime was planted on the copy machine.
Reported life satisfaction was a point higher for those who encountered a dime! Clearly,
their mood improved by finding the small amount of money, leading them to report
higher satisfaction with their lives over all. The topic on a person‟s mind at the time of
answering a life satisfaction or happiness question also affects his or her response.
Sometimes people‟s predicament naturally suggests a topic to focus on. For example,
people in Minnesota report that they believe people in California are happier than they
themselves are, because they naturally focus on the weather when thinking of the well-
being of Californians, ignoring the smog, congestion, and daily hassles of life that
overwhelm the effect of the weather on satisfaction. On average, Minnesotans are no
less happy than Californians when they report their subjective well-being in surveys like
the General Social Survey. This tendency is often called focusing illusion.
15
2.3 Objective well-being
Before presenting data on happiness and life satisfaction to the many skeptical
economists who don't believe you can, or even should, measure well-being
15
, I explain
that the data have been validated by researchers in other disciplines. I tell them that the
answers to happiness and life satisfaction questions are well correlated with a number of
important factors
16
:
1. Objective characteristics such as unemployment
2. Assessments of the person‟s happiness by friends and family members
3. Assessments of the person‟s happiness by his or her spouse
4. Heart rate and blood-pressure measures of response to stress
5. The risk of coronary heart disease
6. Duration of authentic or so-called Duchenne smiles. A Duchenne smile occurs
when both the zygomatic major and obicularus orus facial muscles fire, and
human beings identify these as „genuine‟ smiles
17
7. Skin-resistance measures of response to stress
8. Electroencephalogram measures of prefrontal brain activity
In sum, moods and emotions are consistently found to be associated with biological
measures such as blood pressure, cortisol, and inflammation, as well as indicators of
disease such as artery wall thickening.
15
Although there are less of that ilk these days
16
For references see Di Tella and MacCulloch, 2007
17
See Ekman, Friesen and O’Sullivan (1988) and Ekman, Davidson and Friesen (1990)
16
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