Happy Danes! Looking behind the recent EU survey into income and contentment CSAR Seminar Series 2010 Luisa Corrado University of Cambridge
25th May 2010
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Well-Being and Wealth Subjective Measures: Happiness and Life-Satisfaction Responses to general questions on an ordinal scale ranging from 0 (Very Unhappy) to 10 (Very Happy)
Wealth: Gross domestic product (GDP) is the primary indicator, which represents the total value of all goods and services produced over a speci…c time period. What the talk is about Mapping Well-Being across the World and Europe Determinants of Well-being across European countries, regions and neighborhoods Issue of cross-country comparability when measuring subjective well-being
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Economics and Well-Being
Psychology has worked many years in the subject (Kanheman et al., 1999; Diener et al., 1999). Economics just recently For a v/good survey see Clark et al. on Income and Happiness, Journal of Economic Literature, Vol 46(1) March 2008 , pp. 95-144(50).
From Econlit 465 articles published since 1960: 78% since 1995 61% since 2000 37% in the last 3 years.
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The Concept of Well-being Borrow concepts from psychology: Helliwell & Putnam (2005), Diener & Seligman (2004), Huppert et al (2005). Well-being is usually broken down into twin concepts: Happiness (hedonic aspect) Personal Feelings: perceived level of physical and mental health (depression, positive and negative moods).
Life Satisfaction (eudamonia, Ry¤, 1989) Positive Relation with Others, i.e. trust in a country’s parliament, the police force, people, the respondent’s perception of people’s level of altruism. Purpose in Life, Personal Growth, i.e. level of social engagement, social intimacy and the level of political involvement.
We will concentrate on satisfaction of life as a whole.
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Why Economists Arrived so Late?
Well-being is di¢ cult to measure (see Bertrand and Mullainathan, 2001). Usually economists use indirect measures of measuring happiness via revealed preferences where individuals are assumed to make utility maximising decisions given their constraints.
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Criticism
Individuals from di¤erent cultures may perceive these questions in di¤erent ways Therefore there may be systematic di¤erences across groups of sub-populations. Are direct questions able to capture complex life circumstances or they just pick up contingencies? Can we compare questions across di¤erent individuals and for the same individual across time? Interpersonal and Intercultural Issues
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Wealth and Well-Being Easterlin (1974, 2009) sets up the well-known paradox at a point in time and within countries happiness varies directly with income, but across countries and over time happiness does not increase when a country’s income increases.
Similar studies in psychology (Diener et al, 1985) and political scientists (Inglehart, 1990) Other studies in economics Berhard, 2003; Fahey et al, 2004; Helliwell, 2003. See also work done by Andrew Oswald and Andrew Clark. Deaton (2008); Stevenson and Wolfers (2008) Con…rmed a Positive Relationship between Income and Well-Being contrary to Easterlin’s …ndings.
Relationship across time and space? L. Corrado (Cambridge)
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Income-Happiness Relationship across Time (and Space)
Figure: Clark et al, 2008. L. Corrado (Cambridge)
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Data
World Value Survey (4 waves from 1983 to 2004) Topic of WVS covered are work, the meaning and purpose of life, family life, and contemporary social issues.
European Social Survey (2002, 2004, 2006) Core Modules: Value orientations Cultural/national orientations Underlying social structure of society
Survey of Health, Ageing and Retirement in Europe (2006)
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World Map of Life satisfaction (WVS)
Satisfaction 8.0 - 8.9 7.0 - 7.9 6.0 - 6.9 5.0 - 5.9 3.7 - 4.9
LIFE SATISFACTION 1989 - 1993
Satisfaction 8.0 - 8.9 7.0 - 7.9 6.0 - 6.9 5.0 - 5.9 3.7 - 4.9
L. Corrado (Cambridge)
LIFE SATISFACTION 1999 - 2004
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Across Space: Satisfaction-Income Ranking (WVS 2004) Country
Denmark Malta Ireland Mexico Iceland Belarus Russian Federation Ukraine Zimbabwe
Tanzania
L. Corrado (Cambridge)
Satisfaction Country Top 8.24039 Luxembourg 8.20634 United States 8.16511 Ireland 8.13334 Iceland 8.0528 Denmark Bottom 4.8147 Kyrgyzstan 4.73675 Bangladesh 4.55983 Uganda 3.93551 Nigeria 3.86638 Tanzania
Wealth and Well-Being
GDP(PPP) 69961 39676 38827 33051 31914 1935 1870 1478 1154 674
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Across Space: Life Satisfaction-Income (IV Wave WVS) Con…rms evidence from Deaton (2008) Life Satisfaction and GDP/Capita 2004 Denmark
8
Mexico
Netherlands
Mean satisfaction 6 7
Venezuela Argentina Chile
Canada United States
United Kingdom Italy Spain France
Nigeria
Greece
Peru
Japan
Poland Croatia Slovakia South Africa Estonia Algeria Bosnia & Herzegovina
Uganda
5
Bulgaria Romania
Latvia Lithuania
Belarus Federation Russian
4
Ukraine Zimbabwe Tanzania
6
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7
8 Mean Income
Wealth and Well-Being
9
10
11
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Across Space: Income-Life Satisfaction Relationship in OECD Countries (WVS 2004) The relationship is ‡atter - Easterlin.
Satisfaction and GDP/Capita 1999-2004 for OECD Ireland
8
Mexico
Denmark Lux
US Canada
Mean satisfaction 6 7
UK Italy
Greece
Poland
Spain France
Japan
Hungary
5
Turkey
8
9
10
11
Mean Income L. Corrado (Cambridge)
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Across Space: Life Satisfaction and Income (Europe, ESS 2004) .....Similarly for Europe Life Satisfaction and GDP/Capita 2004 Denmark Ireland
8
Malta
Netherlands
Luxembourg
Finland Germany Belgium Sweden United Kingdom
Mean satisfaction 6 7
Slovenia
Italy
Czech Republic
Spain
France
Greece
Poland
Slovakia Estonia Hungary
5
Latvia Lithuania
8.5
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9
9.5 10 Mean Income Wealth and Well-Being
10.5
11
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Across Time: Satisfaction-Income 17 Developed, 11 Transition, and 9 Developing Countries (12-34 Years)
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Some Evidence Between Countries
Across time well-being is less dependent on income At a given point in time income is generally important in explaining well-being. However the slope of the income-satisfaction relationship is greater for transition than industrialised countries.
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Why Richer People aren’t Happier?
Individuals in richer countries have a ‡at relationship with additional income adding v/little to well-being Once an individual rises above the poverty line ($ 10.000/$15.000 per annum, Frey and Stutzer, 2002; Layard, 2006) the main source of increased well-being is not income but relative income and other relational factors. Hence some transition economies (Puerto-Rico and Mexico) may report the same level of well-being of some of the richest western economies.
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The Social Context of Well-Being (Helliwell & Putnam (2004))
Economic Status “money can buy you happiness, but not much, and above a modest threshold, more money does not mean more happiness” Relative income has a greater in‡uence (Blanch‡ower & Oswald, 2000)
Marriage, education, employment, age, race, religiosity have direct/indirect e¤ects Social Capital (Putnam 2000)
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Social Capital
Social networks have powerful e¤ects on well-being (Coleman 1993; Putnam 2000; Woolcock 2001). Life satisfaction may depend on depth of one’s social network Social trust may be the mechanism through which social capital a¤ects well-being
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Social Capital and its E¤ect on Well-Being
So c ie ty
Pe o ple
F rie nd s
F am ily
g B a s ic N ee d s : (A b s olu te) In co m e M a tte r s
T r a n s i t i o n
Life Satisfaction
Relative Incom e A nd More.... And
m e
Ins titutio ns
lu te Innc o
B o n d i n
B r i d g i n g
I n d u s t r i a l
A bb so
L i n k i n g
Incom e
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The Determinants of Well-Being in Europe
Aslam and Corrado (2007) and Aslam, Corrado and Santoro (2008) Aim to understand drivers of Well-being across the EU-15 Understanding relative di¤erences across nations/regions Choose to use the European Social Survey Overall in 2006, Italy, Greece, Portugal and France report the lowest levels of well-being relative to the Scandinavian countries.
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European Self-reported Life Satisfaction 2006 Figure 1: Map Life-Satisfaction for Europe 2006
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Life Satisfaction and Trust
9
Life Satisfaction and Trust in People DK FI LU AT
BE ES
IE NL
SE
GB
DE GR
6
Life Satisfaction 7
8
North
IT
FR
South
5
PT
4
5
6
7
Trust in People
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A look at the Data on Happiness and Life Satisfaction European Social Survey
European Social Survey (ESS) …rst two rounds: 2002, 2004 and 2006 core modules: Value orientations Cultural/national orientations Underlying social structure of society
Multilevel structure in data: The individual responses are treated as level-one; The Primary Statistical Units (neighborhood data) are treated as level-two; The regions make up level-two; The countries make up level-three.
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A look at the Data on Life Satisfaction European Social Survey 2006
Group Variable
No.
Country Region PSU Individuals
15 66 1697 10226
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Observations per Level Average 1461 155 6 1
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Multilevel Structure of our Data 0
B Yijk = f B @
Xk |{z}
|
Xjk
{z
Xk
}
|
Xijk
{z
Xjk
}
1
Within CountryWithin RegionWithin Neighborhood
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C Zjk Zk Wijk C A
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Determinants of Well-being Age and Health: the older and healthy people are the most satis…ed with their lives.
Income: people with higher incomes report more happiness than people with low income. Relative Income: Higher individual income relative to peer-group has positive e¤ect on well-being.
Unemployment: Generally unemployed people report signi…cantly lower levels of subjective well-being than employed individuals. Education: No direct impact on well-being. Gender: Women in Europe cast usually themselves happier than men Family: Family has a signi…cant impact on well- being (measured by marital status).
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Determinants of Well-being
Religion: Well- being seems to be a¤ected by the religious beliefs. Church attendance is a form of community social capital.
Friends & Neighbours: informal social capital (measured by social engagement) is signi…cantly related with well-being
Trust: Living in a high- trust environment is associated with higher levels of well- being. Country-level e¤ects: Generally, people from countries with better institutions show higher levels of life satisfaction.
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Determinants of Well-being Determinants of Life Satisfaction Variables
2006 Life Satisfaction
Level 3 - Regions (X k ) Regional Average Income Trust: Parliament Trust: Legal System Trust: People Religiosity Social Engagement Level 2 - Neighborhood (PSU) Average PSU Relative to Region (X jk Income Trust: Parliament Trust: Legal System Trust: People Religiosity Social Engagement Level 1 - Individuals Individual relative to average PSU (Xijk Income Trust: Parliament Trust: Legal System Trust: People Religiosity Social Engagement
L. Corrado (Cambridge)
Wealth and Well-Being
0.017 0.003 0.274 0.255 0.129 0.182
+ +
Xk) 0.114 0.002 0.101 0.170 0.098 0.076
+ + + +
+
0.115 0.058 0.067 0.093 0.071 0.101
+ + + + + +
X jk )
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Determinants of Well-being Determinants of Life Satisfaction Variables
2006 Life Satisfaction
Socio-Demografic Indicators Citizenship Victime Crime Health Ref. Cat: Very Bad
Age Ref. Cat.: < 25 years
(Wijk ) 0.088 0.042
+ -
Very Good Good Fair Bad
0.730 0.561 0.342 0.566
+ + + -
25-34 35-44 45-54 55-65 >65
0.139 0.161 0.169 0.074 0.063
+
Married Divorced Stable Relationship Widow
0.216 0.008 0.133 0.078 0.034 0.036 0.314
+ + -
Austria Belgium Germany Spain UK Ireland
0.455 0.490 0.279 0.659 0.418 0.423
+ + + + + +
Marital Status
University Degree Men Unemployed Country E¤ects Ref. Country: Portugal
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+
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Determinants of Life Satisfaction in EU
Consistent trends is that those with highest levels of well-being also report highest levels of trust in their governments, police and society. More satis…ed people seem to report having many friends, as well as at least one close friend, or a partner. The results could appear to con…rm that: In countries where the population reported that they trusted their peers, a higher income made people even happier; In countries where such social cohesion was lacking, even rich tended to be relatively less happy.
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Determinants of Life Satisfaction in EU
Socio-demographic indicators also appear to be key drivers. Can we use them to understand who is reporting higher well-being? Individuals living in a stable relationship; Young and elderly people; Those with a higher per-capita monthly income; Individuals with higher level of perceived health; Unhappy people unlikely to change their lives simply by hopping on the next plane to Copenhagen.
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Cross-Country Comparability: Using Vignettes (Corrado, Weeks, 2010)
Self-assessment question: "How satis…ed are you with your life in general?": Response categories: "Very Dissatis…ed", Dissatis…ed", "Neither Satis…ed not Dissatis…ed", "Satis…ed", "Very Satis…ed". The meaning of the available response categories may be interpreted di¤erently across population sub-groups Responses will be in‡uenced by individuals’preferences and expectations, which vary systematically across countries, or across socio- demographic groups within a country (Response scale heterogeneity)
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Cross-Country Comparability (Corrado, Weeks, 2010) The proportion of "Very Dissatis…ed" is higher in Country A Respondents asked to evaluate the same situation (dashed line): Country B evaluates it as "Satis…ed" while Country A as "Not satis…ed"
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Cross-Country Comparability
Using Country B as benchmark the proportion of “Very Dissatisfied”is now Lower in Country A
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Cross-Country Comparability
Using Country B as benchmark the proportion of “Very Satisfied”is now higher in Country A
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Survey of Health, Ageing and Retirement in Europe (2006)
Survey of Health, Ageing and Retirement in Europe (SHARE) Information on health, psycho-cognitive ability, socio-economic status and social support for individuals aged 50+ living in private European households. A separate project COMPARE utilises a random sample from the SHARE sample, and includes vignettes on health, well-being, job satisfaction and work disability Eleven countries Scandinavia (Denmark and Sweden) Continental Europe (France, Belgium, Germany, Poland, Netherlands, Czech Republic) Southern Europe (Italy, Greece and Spain).
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Vignettes from SHARE (2006)
Use of anchoring vignettes to address the issue of reporting heterogeneity Vignettes = descriptions of …xed levels of a latent construct Any systematic variation across individuals in the rating of the vignettes can be attributed to reporting heterogeneity
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Example of Vignettes from SHARE (2006) John is 63 years old. His wife died 2 years ago and he still spends a lot of time thinking about her. He has 4 children and 10 grandchildren who visit him regularly. John can make ends meet but has no money for extras such as expensive gifts to his grandchildren. He has had to stop working recently due to heart problems. He gets tired easily. Otherwise, he has no serious health conditions. Carry is 72 years old and a widow. Her total after tax income is about e 1,100 per month. She owns the house she lives in and has a large circle of friends. She plays bridge twice a week and goes on vacation regularly with some friends. Lately she has been su¤ering from arthritis, which makes working in the house and garden painful.
Note the …rst vignette depicts a situation worse than the second so to capture more heterogeneity in the distribution for self-assessment
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Distribution of Self-Reports and Vignettes (SHARE, 2006) Sweden
Netherlands
Spain
0
.2
.4
.6
.8
Germany
Self
Vign1
Vign2
Self
Vign1
Vign2
Self
France
Vign1
Vign2
Self
Denmark
Vign1
Vign2
Greece
0
.2
.4
.6
.8
Italy
Self
Vign1
Vign2
Self
Vign1
Vign2
Self
Czechia
Vign1
Vign2
Self
Vign1
Vign2
Poland
0
.2
.4
.6
.8
Belgium
Self
Vign1
Vign2
L. Corrado (Cambridge)
Self
Vign1
Vign2
Self
Wealth and Well-Being
Vign1
Vign2
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Cross-Country Comparability: Using Vignettes (Corrado, Weeks, 2010)
Life Satisfaction Very dissatis…ed Dissatis…ed Neither satis…ed nor dissatis…ed Satis…ed Very satis…ed
L. Corrado (Cambridge)
Germany
Sweden
Netherlands
Spain
Italy
0 4 20 62 14
0 2 13 54 31
0 1 6 70 23
0 7 13 66 14
1 12 23 58 7 "
Wealth and Well-Being
Country France Denmark % 1 4 24 58 12
0 2 7 50 41 "
Greece
Belgium
Czechia
Poland
1 11 37 37 14
1 5 17 57 19
0 5 23 65 7
2 6 27 57 9
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Cross-Country Comparability: Using Vignettes (Corrado, Weeks, 2010) Germany
Sweden
Netherlands
Spain
Vignette 1 Very dissatis…ed Dissatis…ed Neither satis…ed nor dissatis…ed Satis…ed Very satis…ed
2 30 50 18 0
8 51 33 8 1
4 37 51 8 0
4 52 25 19 1
Vignette 2 Very dissatis…ed Dissatis…ed Neither satis…ed nor dissatis…ed Satis…ed Very satis…ed
0 12 32 51 5
1 11 32 50 6
8 11 35 43 3
0 14 29 52 5
L. Corrado (Cambridge)
Italy # 13 43 35 9 0
France
3 13 34 49 2 "
2 16 43 38 2
Wealth and Well-Being
7 50 38 6 0
Denmark # 1 28 45 25 0
Greece
Belgium
Czechia
Poland
9 38 37 13 3
8 50 33 9 1
1 29 53 16 0
5 44 35 15 1
1 5 19 61 15 "
1 23 33 33 10
1 13 27 48 13
1 4 29 58 8
2 15 25 48 10
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E¤ect of Socio-demographic Factors: Correcting for Response Scale Heterogenity Life Satisfaction Ordered Probit
OP with Correction
Female Age Years Education Log Household Income
0.15*** 0.04 0.01* 0.09***
Social Activity
0.14**
0.13* 0.09** 0.02* 0.12*** "
0.23**
Voluntary Work
0.15**
0.32**
" "
+ p < 0.10, * p < 0.05, ** p < 0.01, *** p < 0.001. L. Corrado (Cambridge)
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Main Points Wealth is not the only factor that can explain cross-country di¤erences in reported well-being Need to account for Cross-Country comparability. What Governments are doing: GNH in Bhutan: looking at equitable economic development, environmental care and good governance. National Well-Being Index in Canada
Need to assess role of social capital in designing composite objective indicators E.g.: A person that is "trusty" wrt others feels supported, ful…lled more prone to self-actualisation and will be more productive !higher economic growth?
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