Subjective Well Being, Income, Economic Development and Growth

S bj i W ll B i I E i Subjective Well‐Being, Income, Economic

Development and Growth

Dan Sacks, Betsey Stevenson and Justin Wolfers Wharton School, University of Pennsylvania and NBER y y

CSLS‐ICP Conference on Happiness – December 1, 2010

Implications of the Easterlin Paradox

‰ “Why do national comparisons among countries and over time show an association between income and happiness which is so much weaker than, if not inconsistent with, that shown by so uc wea e t a , f ot co s ste t w t , t at s ow by within-country comparisons?” –Easterlin (1974)

` Reference‐dependent preferences

Relative income matters [Other people’s consumption matters]

Relative income matters [Other people s consumption matters]

Habit formation = hedonic treadmill [Other period’s consumption]

‰ Policy implications:

` Growth: “My results, along with mounting evidence from other time series studies of subjective well-being, do on balance undermine the view that a focus on economic growth is in the best interests of

society.” –Easterlin (2005)

` Public finance: If preferences are interdependent

⇒ Pigouvian rationale for taxing labor supply / conspicuous consumption

Sacks, Stevenson & Wolfers, Income and Happiness 2

⇒ gou a at o a e o ta g abo supp y / co sp cuous co su pt o

Subjective Well‐being

“S b ll b f ll f h f

‰ “Subjective well‐being refers to all of the various types of

evaluations, both positive and negative, that people make of their lives. It includes reflective cognitive evaluations, such as life

satisfaction and work satisfaction interest and engagement and satisfaction and work satisfaction, interest and engagement, and affective reactions to life events, such as joy and sadness.” (Diener, 2005)

‰ Typical questions:

‰ Typical questions:

`

Happiness

“Taking all things together, would you say you are: very happy; quite happy;

not very happy; not at all happy.” y ppy ppy

`

Life satisfaction

“All things considered, how satisfied are you with your life as a whole these days?” [1=Dissatisfied – 10=Satisfied]

`

S ti f ti l dd

`

Satisfaction ladder:

“Here is a ladder representing the ‘ladder of life’. Let's suppose the top of the ladder represents the best possible life for you, and the bottom, the worse possible life for you. On which step of the ladder do you feel you personally

d h i ? [0 10 ] ”

Sacks, Stevenson & Wolfers, Income and Happiness ³

stand at the present time? [0‐10 steps].”

Research Question: What is the Relationship Between Subjective Well‐being and Income?

Types of comparisons 1970s view

“Easterlin Paradox” 1990s view

“Satiation” New view:

Stevenson-Wolfers findings Within country:

Rich v. poor people in a Big effects Big effects for income

<$15k

f h h

Strong effects:

β^within≈0.35

“My results, along with mounting evidence from other time series

country ‐ But not for the rich

Between country:

Rich v. poor countries Statistically insignificant effects interpreted to be zero

GDP<$15k:

Strong effects GDP>$15k: No effects

Strong effects β^between=0.35

f

studies of subjective well-being, do on balance undermine the view that a focus on economic growth is in the best interests of society”

National time series:

Country when rich v. poor No effects

(Japan, USA, Europe) No effects

(Available data are for rich countries)

Strong effects βtime series=0.35 International panel: Largely unexamined Largely unexamined Strong effects

best interests of society.

– Richard Easterlin (2005)

Countries with fast v. slow

growth β^panel=0.35

Implications Relative income

determines well- b i

Relative income determines well- b i “b i

There’s no paradox (and never was) being being… once “basic

needs” are met”

Policy conclusions De-emphasize

growth Rich countries should de-emphasize growth

and tax labor supply

Sacks, Stevenson & Wolfers, Income and Happiness ⁴ and tax labor supply

Research Question: What is the Relationship Between Subjective Well‐being and Income?

Types of comparisons 1970s view

“Easterlin Paradox” 1990s view

“Satiation” New view:

Stevenson-Wolfers findings Within country:

Rich v. poor people in a Big effects Big effects for income

<$15k

f h h

Strong effects:

β^within≈0.35

“once a country has over

$15 000 per head its

country ‐ But not for the rich

Between country:

Rich v. poor countries Statistically insignificant effects interpreted to be zero

GDP<$15k:

Strong effects GDP>$15k: No effects

Strong effects β^between=0.35

$15,000 per head, its level of happiness appears to be independent of its

i ”

National time series:

Country when rich v. poor No effects

(Japan, USA, Europe) No effects

(Available data are for rich countries)

Strong effects βtime series=0.35 International panel: Largely unexamined Largely unexamined Strong effects

income”

– Richard Layard (2003)

Countries with fast v. slow

growth β^panel=0.35

Implications Relative income

determines well- b i

Relative income determines well- b i “b i

There’s no paradox (and never was) being being… once “basic

needs” are met”

Policy conclusions De-emphasize

growth Rich countries should de-emphasize growth

and tax labor supply

Sacks, Stevenson & Wolfers, Income and Happiness ⁵ and tax labor supply

Research Question: What is the Relationship Between Subjective Well‐being and Income?

Types of comparisons 1970s view

“Easterlin Paradox” 1990s view

“Satiation” New view:

Within country:

Rich v. poor people in a Big effects Big effects for income

<$15k

f h h

Strong effects:

β^within≈0.35

country ‐ But not for the rich

Between country:

Rich v. poor countries Statistically insignificant effects interpreted to be zero

GDP<$15k:

Strong effects GDP>$15k: No effects

Strong effects β^between≈0.35

National time series:

Country when rich v. poor No effects

(Japan, USA, Europe) No effects

(Available data are for rich countries)

Strong effects βtime series≈0.35

International panel: Largely unexamined Largely unexamined Strong effects Countries with fast v. slow

growth β^panel≈0.35

Implications Relative income

determines well- b i

Relative income determines well- b i “b i

There’s no paradox (and never was) being being… once “basic

needs” are met”

Policy conclusions De-emphasize

growth Rich countries should de-emphasize growth

and tax labor supply

Sacks, Stevenson & Wolfers, Income and Happiness ⁶ and tax labor supply

Why revisit the stylized facts?

1

Theoretical implications: Reference‐dependent preferences

1.

Theoretical implications: Reference dependent preferences

2.

Yielding important policy implications (and big policy claims)

What explains our new findings?

1.

New data:

Longer time series (1946 2010)

ƒ

Longer time series (1946‐2010);

ƒ

More countries (n=140)

2.

Statistical inference: Absence of evidence v. evidence of absence

3.

What are “big” versus small effects? ⇒ Focus on the magnitudes

What we won’t do What we won’t do

‰

Assess causality: Happiness = β log(Income)

‰

Revisit what subjective well‐being data “mean”

Sacks, Stevenson & Wolfers, Income and Happiness 7

j g

Outline: Assessing the Happiness‐Income link

W h l

‰ Within‐country cross‐sectional comparisons

`

USA

`

All countries

‰ Between countries:

`

In past and current data

`

Multiple datasets

`

Multiple datasets

`

For both happiness and life satisfaction

`

No evidence of satiation

‰ National Time Series and International Panels

`

Japan

`

Europe

`

Europe

`

World Values Survey

`

USA

Sacks, Stevenson & Wolfers, Income and Happiness 8

‰ Newly‐available measures of subjective well‐being

Within‐Country Comparisons: USA

“T k ll t th h ld thi th d ?”

Family income Very happy Pretty happy Not too happy

<$12,500 (bottom 10%) 21% 53% 26%

“Taken all together, how would you say things are these days?”

$12,500‐$49,999 25% 61% 13%

$50,000‐$149,999 40% 54% 6%

≥$150 000 (top 10%) 53% 45% 2%

≥$150,000 (top 10%) 53% 45% 2%

Source: U.S. General Social Survey, 2006

“When we plot average happiness versus income for clusters of people in a given country at a given time, we see that rich people are in fact much happier than poor people. It’s actually an astonishingly large difference. There’s no one single change

h ld k l f h h l h

you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.”

‐ Robert Frank (2005)

Sacks, Stevenson & Wolfers, Income and Happiness 9

Well‐Being and Log(Income)

USA

1 8 Lowess fits for the 25 Largest Countries; Gallup World Poll

Satisfaction and Log(Family Income)

MEX FRADEU

GBR ITA

1

r sc or e

10) 7 β ^within ≈ 0.35

IND BRA

PAK RUS

JPN

VNMTHATUR IRN

COL KOR

.5

tion la dde r

r s core (0- 6

CHN PAK

BGDNGA

PHLEGY UKR

0

ed sa ti sf ac t

ct ion la dde 5

ETH

-.5

No rm al iz e

Sa ti sf ac 4

3

-1

Sa cks 10

.5 1 2 4 8 16 32 64 128

Annual household income ($000s; Log income scale)

Source: Daniel Sacks, Betsey Stevenson and Justin Wolfers (2010), “Subjective Well‐Being, Income,

Within‐country : Rich are happier than poor

Without controls

With controls

Permanent Income

IV Sample size

Adjusted Gallup World Poll:

Ladder question

0.236

(0.014)

0.232

(0.014)

0.422 0.449

(0.027)

171,900 (126 Countries) Countries)

Life satisfaction

0.216

(0.017)

0.227

(0.037)

0.413 0.26

(0.035)

116,527 (61 Countries)

Survey: Ladder question

0.281

(0.027)

0.283

(0.027)

0.515 0.393

(0.033)

32,463 (43 Countries)

Notes: The table reports the coefficient on the log of household income obtained from regressing standardized Notes: The table reports the coefficient on the log of household income, obtained from regressing standardized life satisfaction against the log of household income and country fixed effects using the indicated data set.

Additional controls include a quartic in age, interacted with sex, plus indicators for age and sex missing. Our permanent income adjustment is to scale up our estimates by 1/0.55; see text for explanation. We instrument for income using full set of country×education fixed effects. We report robust standard errors, clustered at the country

Sacks, Stevenson & Wolfers, Income and Happiness ¹¹ level, in parentheses. For further details on the standardization of satisfaction and the exact wording of

satisfaction question, see the text. ^***, ^**and ^*denote statistically significant at 1%, 5% and 10%, respectively.

Outline: Assessing the Happiness‐Income link

h

‰ Within‐country comparisons

`

USA

`

All countries

β

≈ 0.35

‰ Between countries:

`

In past and current data

“the happiness differences between rich and poor countries that one might

expect on the basis of the within country

`

Multiple datasets

`

Both happiness and life satisfaction

`

No evidence of satiation

expect on the basis of the within country differences by economic status are not borne out by the international data.” – Easterlin, (1974)

‰ National Time Series and International Panels

`

Japan J p

`

Europe

`

World Values Survey

`

USA

Sacks, Stevenson & Wolfers, Income and Happiness ¹²

1.5 Gallup, 1946

(Happiness) Tension Study, 1948

(Satisfaction) Gallup, 1949

(Happiness)

Early Cross‐National Studies of Well‐Being and GDP

CAN CAN CAN GBR GBR GBRUSAUSAUSA

0.0 0.5 1.0

AUS AUS AUS GBR GBR NLDGBR NLD NLD NOR NOR NOR

USA USA

USA AUSAUSAUS

CAN CAN CAN GBR GBR NLDGBR NLD NLD NOR NOR NOR

USA USA USA

FRA FRA FRA

-1.0 -0.5

9 96 1 14*l ( ) [ 0 31]

DEU DEU DEU

FRA FRA FRA ITA ITA MEXITA MEX MEX

4 11 0 49*l ( ) [ 0 23]

CAN CAN CAN

FRA FRA FRA NOR NOR NOR

9 46 1 08*l ( ) [ 0 60]

ed index)

-1.5

.5 1 2 4 8 16 32

y = -9.96+1.14*ln(x) [se=0.31]

Correlation=0.93

.5 1 2 4 8 16 32

y = -4.11+0.49*ln(x) [se=0.23]

Correlation=0.63

.5 1 2 4 8 16 32

y = -9.46+1.08*ln(x) [se=0.60]

Correlation=0.63

1.5 Patterns of Human Concerns, 1960

(Satisfaction ladder) World Survey III, 1965 (happiness)

g (Standardize

BRA BRA BRA BRA BRA BRA BRA BRA BRA BRA BRA CUB CUB CUB CUB CUB CUB CUB CUB CUB CUB CUB

DEU DEU DEU DEU DEU DEU DEU DEU DEU DEU EGY DEU

EGY EGY EGY EGY EGY EGY EGY EGY EGY

EGY JPNJPNJPNJPNJPNJPNJPNJPNJPNJPNJPNISRISRISRISRISRISRISRISRISRISRISR NGA

NGA NGA NGA NGA NGA NGA NGA NGA NGA

NGA PANPANPANPANPANPANPANPANPANPANPAN

USA USA USA USA USA USA USA USA USA USA USA

YUG YUG YUG YUG YUG YUG YUG YUG YUG YUG

0.0 YUG

0.5 1.0

GBR GBRGBRUSAUSAUSA

Well-being

β ^between ≈ 0.35

BRA BRA BRA BRA BRA BRA BRA BRA BRA BRA BRA IND

IND IND IND IND IND IND IND IND IND IND

POL POL POL POL POL POL POL POL POL POL POL

-1.0 -0.5

2 45 0 31*l ( ) [ 0 17]

FRA FRA FRA FRG FRG FRG

ITA ITA ITA MYS

MYS PHLMYS PHL THAPHL THA THA

1 60 0 17*l ( ) [ 0 15]

Sacks, Stevenson & Wolfers, Income and Happiness

DOM DOM DOM DOM DOM DOM DOM DOM DOM DOM

-1.5 DOM

.5 1 2 4 8 16 32

y = -2.45+0.31*ln(x) [se=0.17]

Correlation=0.49

.5 1 2 4 8 16 32

y = -1.60+0.17*ln(x) [se=0.15]

Correlation=0.41

Real GDP per capita (thousands of dollars, log scale) 13

DNK

9

1981-84 wave

DNKCHE MLT

9

1989-93 wave

World Values Survey ^{β between ≈ 0.35}

AUS BEL CAN DEU

DNK

ESPFRA GBR HUN

IRL ISL

JPNITA MLT SWENLDNOR

USA

0.0 0.5

6 7

8 AUTBEL

BRA

CAN

CZEDEU DNK

ESP

EST

FIN FRA GBR

HUN

IRL ISL ITA KOR JPN

LVALTU MLT

NLDNOR

POL

PRT

ROM

SVKSVN

SWE

TUR

USA

0.0 0.5

6 7 8

KOR

ARG

-1.0 -0.5

4 5

y = 4 07+0 46*ln(x) [se=0 22]

BGR BLR LVA

RUS ARG CHL

CHNIND MEX

NGA ZAF

-1.0 -0.5

4 5

y = 4 69+0 51*ln(x) [se=0 08] adder score

e (0-10)

3 -1.5

.5 1 2 4 8 16 32

y = -4.07+0.46*ln(x) [se=0.22]

Correlation=0.57 3 -1.5

.5 1 2 4 8 16 32

y = -4.69+0.51*ln(x) [se=0.08]

Correlation=0.74

COL CHE

PRI

9

1994-99 wave

IRLDNK MEX MLTPRI 1.0 9

1999-2004 wave

satisfaction la

on ladder score

AUS BRA

COL CHE

CZE ESPDEU

FINGBR

HRVHUN

JPN MEX

MKD

NZL NOR

PER PHL

POL PRI

SCG

SLV

SVK SVN

SWE

TUR TWN URY

USA VEN

ZAF INDCHN

NGA 0.0

0.5

6 7 8

ARG

AUT BEL

BGD BIH

CAN

CHN

CZE DEU

DNK

DZA

ESP

EST

FIN FRA GBR HRV GRC

HUN IDN

IRL

IRN

ISL

ISRITA

JOR

JPN

KGZ KOR

LUX

MAR

MEX MLT

NGA

NLD

PHLPER

POL SAUPRT

SCG

SGP

SVK SVN

SWE

TUR UGA

VEN USA

VNM

ZAF CHL

0.0 0.5

6 7 8

Standardized

Satisfactio

ALB ARM AZE

BGR BIH

BLR

GEO LVAESTLTU

MDA

MKD ROM RUS SCG

UKR

ZAF ARG

BGD DOMCHL

-1.0 -0.5

4 5

y = 4 00+0 43*ln(x) [se=0 05]

ALBBGR BLR

DZA HUN INDIRQ

JOR LVALTU MDA

PAK MKDROM RUS SCG TUR

TZA

UGA

UKR ZWE

EGY

-1.0 -0.5

4 5

y = 2 88+0 32*ln(x) [se=0 04]

Sacks, Stevenson & Wolfers, Income and Happiness 14 3 -1.5

.5 1 2 4 8 16 32

y = -4.00+0.43 ln(x) [se=0.05]

Correlation=0.72 3 -1.5

.5 1 2 4 8 16 32

y = -2.88+0.32 ln(x) [se=0.04]

Correlation=0.72

Real GDP per Capita (thousands of dollars, log scale)

9 1.5

Pew Global Attitudes Survey, 2002

β ^between ≈ 0 35

GTM

1.0

core

8

)

β ^between ≈ 0.35

BRA

CAN

EGY DEUFRA

GBR HND

KOR ITA

MEX USA

VNM VEN

0.5

tion ladder sc

7

r score (0-10)

ARG BOL

BRA

CIV CHN

CZE IDN

JOR

JPN

LBN NGA

PAK

PER

PHL POL

SEN SVK

UZB

ZAF

0.0

dized satisfac

6

faction ladder

AGO BGDGHA

KEN IND LBN

MLI TURRUS

TZA UGA

UKR

-0.5

rd

4

Satisf

5

TZA BGR

-1.0 3

4

y = -1.73+0.20*ln(x) [se=0.04]

Correlation=0.55

Sacks, Stevenson & Wolfers, Income and Happiness 15

3

.5 1 2 4 8 16 32

Real GDP per capita (thousands of dollars, log scale)

Correlation 0.55

1.5 9 Gallup World Poll

β ^{b t} 0 35

AUSAUT BEL CANCHE CRI

DNK

ESP FIN NLDIRLNOR

NZL SWEUSA

1.0

ore

8 β ^between ≈ 0.35

ARE ARG

BELAUT

BRA COL

CRI

CYP CZE DEU

ESP FRAGBR GTM GRC

ISR ITA

JAM KWT JPN

MEX MYS

PAN PRI

SAU

SGP TWN VEN

0.5

7

score (0-10)

ARG BOL BLR

BWA COL CHL

CUBECUEGY DZADOM EST GTM

HKG HND

HRV

IND IRN HUN

JOR JPN

KAZ KOR

KWT

LAO

LTU

MAR

MMR MNE

MYS

PAK PER

POL

PRT PRYSLV ROMRUS

SVK THA TTO SVN TUR

TWN

UNK UKR

URY UZB VNM

ZAF

0.0

tisfacti

6

action ladder

AFG

AGO ARMALBAZE BENBFA

BGD

BIH BWA

CHN CMR

ECU DZA

ETH

GHA IDN HUN

IRQ KEN

KGZ LBN

LKA

LVA MDA MAR

MDG MKD

MLI

MOZ MRT MWI

NER

NGA NPL NIC

PER PHL PRY

RWA

SEN SRB

TJK TZA

UGA UNK UKR YEMZMB

-0.5

andardi

Satisfa

5

BDI BENBFA HTI KHMGEO BGR SLE

TCD TGO TZA

ZWE

3 -1.0 4

y=-2.955+0.342*ln(x) [se=0.019]

Correlation=0 82

Sacks, Stevenson & Wolfers, Income and Happiness 16

3

0.5 1 2 4 8 16 32

Real GDP per capita, (thousands of dollars, log scale)

Correlation=0.82

Between Countries: Rich Countries Are Happier

Estimates of β

controls

With

controls Sample size

Gallup World Poll: Ladder question

0.357

(0 019)

0.378

(0 019)

0.342

(0 019)

291,383 (131 countries)

β ^between ≈ 0.35

question

(0.019) (0.019) (0.019) (131 countries)

World Values Survey:

Life satisfaction

0.360

(0.034)

0.364

(0.034)

0.370

(0.036)

234,093 (79 countries)

Pew Global Attitudes

Survey: Ladder question

0.214

(0.039)

0.231

(0.038)

0.204

(0.037)

37,974 (44 countries)

Notes: This table reports the coefficient on the log of per capita GDP, obtained from regressing standardized life

i f i i h l f GDP i i di id l d i h d i h l d i i l l l d

satisfaction against the log of GDP, using individual data with and without controls, and using national‐level data without controls, in the indicated data set. In the national‐level regressions, we take the within‐country average of standardized life satisfaction as the dependent variable. GDP per capita is at purchasing power parity. The

additional controls include a quartic in age, interacted with sex, plus indicators for age and sex missing. We report robust standard errors, clustered at the country level, in parentheses. For further details on the standardization of

Sacks, Stevenson & Wolfers, Income and Happiness ¹⁷

, y , p

satisfaction, the exact wording of satisfaction question, and the sources for GDP per capita, see the text. ^***, ^**and ^* denote statistically significant at 1%, 5% and 10%, respectively.

9

1.5

Within country wellbeing gradient

Comparing Within and Between Country Estimates

DNK FIN

8

ore

1.0

Within-country wellbeing gradient Between-country wellbeing gradient

β ^between ≈ β ^within ≈ 0 35

ARE AUSAUT

BEL

BRA

CANCHE CRI

DEU ESP

FIN

FRAGBR IRL ISR

MEX ITA

NLDNOR NZL

PAN PRI

SAU

SGP SWEUSA VEN

7

score (0-10)

ion ladder sco

0.5 β ^between ≈ β ^within ≈ 0.35

ARG BOL BLR

BRA COL CHL CUB

CYP CZE DEU

EST GTM GRC

HKG HRV

JAM

JOR JPN

KAZ KOR

LTU KWT MYS

PAN

POL PRI

SLV PRT

THA TTO SVN

TWN URY

VNM

6

faction ladder

dized satisfacti

0.0

AGO ARMALBAZE BGD

BIH BWA

CHN CUB

DZADOM

ECUEGY EST

GHA

HND HUN

INDIDN IRN KGZ

LAO

LBN LKA

LVA MDA MAR

MDG MKD

MLI

MMR MNE

MOZ MRT MWI

NGA NPL NIC PAK

PER PHL

PRT PRY ROMRUS

SEN SRB

SVK

TJK

TUR

UGA

UNKUZB VNM UKR YEM

ZAF ZMB

4 5

Standard

-0.5

AFGBDI BENBFA BGR

ETH CMR

HTI GEO KEN

KHM MWI MLI

NER RWA

SLE

TCD TGO TZA

UGA

ZWE

3

4 -1.0

Sacks, Stevenson & Wolfers, Income and Happiness ¹⁸

TGO

3

.5 1 2 4 8 16 32

Real GDP per capita (thousands of dollars, log scale)

Are There Satiation Effects?

‰ Th i Happiness and Family Income in the U.S.

‰ There exists no dataset in which the well‐being‐income gradient changes at

1.0 1.5

Index

gradient changes at incomes above $15,000

‰ There exists no

0.0 0.5

dized Happiness

‰ There exists no income level above which further income

does not raise happiness

-1.0 -0.5

Standard

pp

Inc>$15k: Slope=0.26 (0.05)

p ( )

Inc<15k: Slope=0.31 (0.49)

-1.5

4 8 16 32 64 128 256 512

Family Income ($000s) Source: Gallup Poll, December 2007

Stevenson and Wolfers, Subjective Well-Being ¹⁹

Source: Betsey Stevenson and Justin Wolfers (2010), “Subjective Well‐being and Income: Is

There Any Evidence of Satiation?”

Outline: Assessing the Happiness‐Income link

‰ Within‐country comparisons

`

USA

`

All countries

β

≈ 0.35

‰ Between countries:

`

Through time β

≈ 0.35

`

Through time

`

Multiple datasets

`

Both happiness and life satisfaction

d f

β

`

No evidence of satiation

‰ National Time Series and International Panels

‰ National Time Series and International Panels

`

Japan

`

Europe

`

World Values Survey

“income growth in a society does not increase happiness”. - Easterlin (1995)

Sacks, Stevenson & Wolfers, Income and Happiness 20

`

World Values Survey

`

USA

Happiness & Economic Growth: Time Series Evidence

‰ Japan

`

Old view: Life satisfaction flat, despite robust post‐war growth

`

New view: Robust growth in life satisfaction g

…apparent only when taking account of breaks in the data

‰ US

`

Old view: No increase in happiness since 1972 despite GDP growth

`

Old view: No increase in happiness since 1972 despite GDP growth

`

New view: True.

…but few sample participants experienced income growth

‰ Europe

‰ Europe

`

Old view: No clear evidence of growing life satisfaction (1973‐89)

`

New view: Extending data through 2007 yields clearly rising satisfaction

‰ Around the World

‰ Around the World

`

Old view: No clear evidence of growing life satisfaction

`

New view: Clear positive relationship between income and growth

h i bl l

… when comparing comparable samples

Stevenson and Wolfers, Subjective Well-Being ²¹ Source: Betsey Stevenson and Justin Wolfers (2010), “Time Series Evidence on the Well‐Being Link”

Time Series: No rise in happiness, despite growth

Japan U.S.A Europe

Life in Nation Surveys General Social Survey Eurobarometer

Sacks, Stevenson & Wolfers, Income and Happiness ²²

Japan: Well‐Being versus GDP

Pattern of responses from four different questions

Evolution of Subjective Well-Being and GDP in Japan

1959(1)

1962(1) 1963(1)

1995(5) How do you feel about

your circumstances at home:

-Satisfied

-Not satisfied, not dissatisfied -Somewhat dissatisfied -Extremely dissatisfied

How do you feel about your life at home:

-Completely satisfied -Satisfied

-Somewhat dissatisfied -Completely dissatisfied

How do you feel about your life now:

-Completely satisfied -Satisfied

-Somewhat dissatisfied -Completely dissatisfied

Overall, to what degree are you satisfied with your life now:

-Satisfied -Somewhat

0.2 0.3

dex

1958(2)

1960(1)1961(1) 1962(1)

1968(1) 1970(1)

1977(5) 1979(5)

1982(5)1984(5) 1985(5)

1986(5) 1990(5)1991(5) 1992(5)1993(5)

1994(5) 1996(7)

1997(5) 2006(10)

-Extremely dissatisfied -Completely dissatisfied -Completely dissatisfied -Somewhat

satisfied -Somewhat dissatisfied -Dissatisfied

0.1

P robi t In d

1964(1) 1965(1)

1967(2) 1968(1)

1969(1) 1970(1)

1972(1) 1973(1)

1975(5)1976(5) 1976(11)

1978(5) 1980(5)1981(5)

1982(5) 1983(5)1984(5)

1987(5)1988(5)

1989(5) ( ) 1999(12)

2001(9) 2002(6)

2004(6)2005(6) 2007(7)

0 1 0.0

g: O rde red

1966(1)

1971(1)

1974(1)

1975(11) 2003(6)

2004(6)( )

-0.2 -0.1

W el l- be in g

1974(1)

1974(11) Slope=0.19

[se=0.13] Slope=0.16

[se=0.08] Slope=0.18

[se=0.07] Slope=-1.14

[se=0.51]

-0.3

W

2000 4000 8000 16000 32000

Stevenson and Wolfers, Subjective Well-Being 23

2000 4000 8000 16000 32000

Real Japanese GDP per Capita, PPP (log scale); 2000 US$

Source: Life-in-nation surveys, 1958-2007.

β time series ≈ 0.35

Japan: Raw data

4.1%

4.1%

.9% 6.0

$32k

ta

Economic Conditions

Japan: 1958-2007

10 5%

10 5%

12.8%

12.8%

3 0 4.0 5.0

ment Rate (%)

$4k

$8k

$16k

GDP per capit og scale)

10.5%

10.5%

1.0 2.0 3.0

Unemploym

$1k

$2k

$4k

Real Japanese PPP (Lo

0.0

$.5k

R

1960 1970 1980 1990 2000 2010

Real GDP per capita GDP trend Unemployment rate (right axis)

1

it Index 1

Subjective Well-Being

.5 .75 .5

.75

Ordered Probi

j g

Raw series,

with breaks - 25

0 .25

- 25 0 .25

Well-Being:

Stevenson and Wolfers, Subjective Well-Being 24 -.5

.25 -.5

.25

Subjective

1960 1970 1980 1990 2000 2010

USA: Is it surprising that happiness hasn’t grown?

ndex

Average Happiness

Income and Happiness Trends in the U.S.

-0.1 0.0 0.1

Happiness: dered Probit In

Ord -0.2

1970 1975 1980 1985 1990 1995 2000 2005 2010

GDP per

2 in me) 0.8

Measures of Log(Average Income)

Average household income [CPS]

capitap

Average household 0 0

0.2 0.4 0.6

nge since 1972 average incom

household income [GSS]

-0.2 0.0

Chan log(

1970 1975 1980 1985 1990 1995 2000 2005 2010

in e) 0.8

Measures of Average Log(Income)

Average log(household income) [CPS]

A 0.2

0.4 0.6

ge since 1972 age log(income

Measures of Average Log(Income)

Happiness_t = 0.048 * Average log household income in GSS_t [95% ci: ‐0.25 ‐ +0.34]

Happiness_t = 0.058 * Average log household income in CPS_t [95% ci: ‐0.21 – 0.33]

Sacks, Stevenson & Wolfers, Income and Happiness 25 income) [CPS]

Average log(household income) [GSS]

-0.2 0.0

Chang avera

1970 1975 1980 1985 1990 1995 2000 2005 2010

0.25

0.50

Change in Life Satisfaction and Economic Growth in Europe

-0.25 0.00

-0.50 y = 2.53 + -0.25 * log(GDP) [se=0.14]

Correlation = -0.31 y = -3.63 + 0.36 * log(GDP) [se=0.05]

Correlation = 0.73 y = -2.05 + 0.21 * log(GDP) [se=0.10]

Correlation = 0.22

0 25

0.50 France Ireland Italy

0 Scale

-0.25 0.00 0.25

isfaction, 0-1

-0.50 y = -3.91 + 0.39 * log(GDP) [se=0.10]

Correlation = 0.63 y = -0.90 + 0.09 * log(GDP) [se=0.05]

Correlation = 0.30 y = -6.75 + 0.68 * log(GDP) [se=0.09]

Correlation = 0.81

0.50 Netherlands United Kingdom West Germany

Life Sat

-0.25 0.00 0.25

Stevenson and Wolfers, Subjective Well-Being

-0.50

8 16 32

y = -1.88 + 0.19 * log(GDP) [se=0.07]

Correlation = 0.41

8 16 32

y = -1.34 + 0.13 * log(GDP) [se=0.03]

Correlation = 0.48

8 16 32

y = -1.08 + 0.11 * log(GDP) [se=0.08]

Correlation = 0.19

Real GDP per capita (thousands of dollars, log scale) ²⁶

β time series ≈ 0.35

KOR Ch. Sat.=-0.14+0.71*Ch. GDP [se=0.15]

0 50

0.75 Changes between waves I and II

Ch. Sat.=-0.15+0.60*Ch. GDP [se=0.11]

Changes between waves II and III

Ch. Sat.=0.05+0.51*Ch. GDP [se=0.25]

Changes between waves III and IV

Change in Life Satisfaction & Economic Growth: World Values Survey

ARG BEL CAN ESP FRAIRL

ITA MLT NLDUSA

0 00 0.25 0.50

ARG CHL FIN GBRJPNSVN

ALB BGR

BIH BLR CZEDEUESP

EST

FIN HRV LTU

LVA MDA

MEX

PER ROMRUS PRI UKR SVN VEN

cale) ZAF

ARG CAN DEU DNKGBR

HUN

ISL JPNNLDIRL NOR SWE

-0.25

0.00 ^ARG

BGR

BLR

CHEBRA

CHL CZE

DEU ESP EST

HUN

LTU LVA

NORPOL

RUS ROM

SVK SWEUSATUR

GBRJPNHUN MKD PER

PHLPOL SCGSVKSWE

TUR USA

sfaction (z-sc

-0.50

-50 0 50 100

BLR

-50 0 50 100 -50 0 50 100

Ch. Sat.=-0.22+0.42*Ch. GDP [se=0.27]

0.75 Changes between waves I and III

Ch. Sat.=-0.09 +0.29*Ch. GDP [se=0.12]

Changes between waves II and IV

Ch. Sat.=-0.11 +0.23*Ch. GDP [se=0.08]

Changes between waves I and IV

ge in life satis

0.25 0.50

BGR CZEDEU

IRL SVN

ESP

FRA IRL

ITA

MLT

KOR Offscale (215, 0.35)

mulative chang

ARG AUSDEU

ESPGBRJPN NOR SWE

USA

-0.25 0.00

AUT BEL BGR

BLR

CANDNK EST ESP

FRAFIN GBR HUN

IRL ISL

JPNITA

KOR LTU

LVA

MLT NLD

PRTPOL RUS ROMSVK

SWE

TUR USA

BEL CAN DEU DNK FRA

GBR ISL JPN

NLD MLT

SWE

Cum USA

Stevenson & Wolfers, Economic Growth and Happiness 27 -0.50 HUN

-50 0 50 100

LTU

-50 0 50 100

HUN

0 50 100 150

Cumulative change in real GDP per capita (percent)

β time series ≈ 0.35

0.4

ts

International Panel Data: World Values Survey β ^panel ≈ 0.35

ve fixed effect

0 2 β

0.2

ntry and wav

0.0

elative to coun

atisfaction, reNormalized sa

-0.2

Sacks, Stevenson & Wolfers, Income and Happiness

-0.4

N

-.5 -.25 0 .25 .5

Log GDP, relative to country and wave fixed effects

y = 0.51*ln(x) [se=0.13]

Correlation=0.55 28

Satisfaction and Growth: International Panel Regressions

World Values Survey Eurobarometer All Countries Transition

Countries

Non‐transition Countries

All Countries

Panel A: Panel Regressions

ln(GDP)

0.505

( )

0.638

( )

0.407

( )

0.170

( )

(0.109) (0.239) (0.116) (0.074)

N 166 observations

79 countries

31 observations 10 countries

135 observations 66 countries

776 observations 31 countries

Panel B: Long differences

,

ln(GDP)

0.47

0.694

0.35

0.278

(0.128) (0.387) (0.163) (0.164)

N 66 differences 10 differences 46 differences 30 differences

Sacks, Stevenson & Wolfers, Income and Happiness ²⁹

β ^panel ≈ 0.35

.4

International Panel Data: Eurobarometer

β ^panel ≈ 0.35

2

β

.2

0

-. 2

y = 0 17*ln(x) [se=0 05]

Sacks, Stevenson & Wolfers, Income and Happiness

-. 4

-.4 -.2 0 .2 .4

log GDP, relative to country and wave mean

y = 0.17*ln(x) [se=0.05]

Correlation=0.15 30

0.4

s

Long Differences: World Values Survey β ^panel ≈ 0.35

CZEITA

MDA VEN

KOR OffscaleKOR (1, 0.33)

e fixed effect

0.2 β

ALB AUT

BEL BGR

BIH CHE BRA DEU

DNK

ESP

EST

FIN FRA

HRV

MEX IRL

MLT NLD

NOR

PRI PRT

UKR

0 0

ntry and wave

AUSCAN DNK

GBR ISL

JPN

LVA

NOR

PER

PHL

POL

SCG

SVK SWE

ZAF USA

0 2 0.0

elative to coun

BLR

LTU MKD

RUS ROM SVK

TUR

-0.2

atisfaction, re

HUN

-0.4

Change in sa

y = 0 00+0 47*ln(x) [se=0 14]

Sacks, Stevenson & Wolfers, Income and Happiness

-0.6

-.5 -.25 0 .25 .5

Change in log GDP, relative to country and wave fixed effects

y = 0.00+0.47*ln(x) [se=0.14]

Correlation=0.54 31

GRC 07-97

.4

Long Differences: Eurobarometer β ^panel ≈ 0.35

ESP 07 97

GDR 97-87 ITA 97-87

NOR 97-87

2

β

DNK 87-77

DNK 97-87

ESP 07-97

FRA 07-97

FRG 87-77 FRG 97-87

GBR 07-97 GRC 87-77

ITA 87-77 LUX 87-77

NLD 87-77

NLD 97 87

PRT 97-87

.2

BEL 97-87

BEL 07-97 DNK 07-97

FIN 07-97

FRA 87-77 FRA 97-87

GBR 87-77

GBR 97-87

IRL 97-87

IRL 07-97

ITA 07-97

LUX 97-87 LUX 07-97

NLD 97-87

SWE 07-97

0

AUT 07-97 BEL 07-97

ESP 97-87

GDR 07-97 NLD 07-97PRT 07-97

-. 2

BEL 87-77 FRG 07-97

IRL 87-77

Change in s

y = 0 01+0 28*ln(x) [se=0 16]

Sacks, Stevenson & Wolfers, Income and Happiness

GRC 97-87

-. 4

-.2 0 .2 .4

Change in log GDP, relative to country and wave fixed effects

y = 0.01+0.28*ln(x) [se=0.16]

Correlation=0.19 32

Conclusion: Stylized Facts about Well‐being and Income

Wi hi i

‰ Within‐country comparisons

` USA

` All countries

B i

β

≈ 0.35

‰ Between countries:

` Since 1946

` Multiple datasets

` Both happiness and life satisfaction

` N id f ti ti

β

≈ 0.35

` No evidence of satiation

‰ National Time Series

` Japan SA

β

≈ 0.35

` USA

` 9 European nations

‰ International Panel data

W ld V l S

β ≈ 0 35

` World Values Survey

` Eurobarometer

‰ Other measures of well‐being

β

≈ 0.35

Sacks, Stevenson & Wolfers, Income and Happiness ³³

` Pain, depression, smiling, good tasting food to eat, respect

‰ Blank slide: End of talk

Sacks, Stevenson & Wolfers, Income and Happiness 34

Is there any evidence of satiation?

“if we compare countries, there is no evidence that richer countries are happier than poorer ones – so long as we confine ourselves to countries with incomes over

$15,000 per head.” ‐ Layard (2005)

‰ Rich countries (GDP>$15,000)

`

Satisfaction=1.08*log(GDP)

‰ Poor countries (GDP<$15,000)

`

Satisfaction=0.35*log(GDP)

A 1% i i GDP

‰ A 1% rise in GDP:

`

Has three times larger effects in rich countries than poor countries

‰ A $100 rise in GDP

‰ A $100 rise in GDP

`

3x larger effect in Jamaica than US

`

20x larger effect in Burundi than US

Sacks, Stevenson and Wolfers, Subjective Well-Being 35