Tuesday, March 3, 2009

Economist's Notebook: Happiness and Prosperity

[Photo: Brent Wojahn/Oregonian]

The Oregonian reports on the new Business Week article listing Portland as the 'unhappiest' city in the country. One of the reasons they cite is our high unemployment rate, which begs the question are happiness and economic prosperity linked?

For a long time the thought was that happiness was dependant only on your relative economic position: if you are poor and are surrounded by rich people, you are unhappy. But if you are poor and are surrounded by poor people, you are less unhappy. So as a consequence poor within a society are unhappy, but poor societies are not more unhappy than rich and countries whose wealth grows do not become more happy. This general set of statements was known as the Easterlin paradox.

This view grew, in part, from cross-country evidence that suggested that poor countries as a whole were not more happy than rich. Figures such as this, from a leading development economics textbook, seem to support this view:

But new evidence from Stevenson and Wolfers, who did a comprehensive analysis of the evidence, much of it new and much better than was previously available, suggests that this is not (or is no longer) true. Perhaps this simply comes from the better data (their view) or perhaps is comes from the fact that information technology has made it easier for the poor in poor countries to see how the rich in rich countries live. Whatever the reason, they provide a pretty convincing analysis that happiness and absolute economic status (not just relative) are strongly linked. Here is a nice New York Times graphic from the article about their research that summarizes their findings nicely:

Notice that not only are rich countries happier, but the rich are happier than the poor in most countries and this happiness differential within countries seems most pronounced in the middle income countries, many of which have high income inequality. But Wolfers and Stevenson have also found that happiness inequality has fallen in the US at a time when economic inequality has risen. However, the happiness gap between the highly educated and the less-highly educated has risen, at a time when the return to skilled labor has risen relative to the return to unskilled labor. So the income inequality and happiness inequality link is fuzzy.
Nevertheless it appears that your college degree pays off both economically and in personal happiness, what a deal!


Jeff Alworth said...

The idea that "subjective wellbeing" can be measured precisely enough to understand the variables that affect such a concept is hard for me to buy. (It's enough that cross-cultural analysis is impossible, but the authors assume that self-assessment is itself valid--something I don't assume.) And I don't buy the premise that you can measure this through biological proxy.

(The authors admit this: "although the validity of these measures remains a somewhat open question...")

I think the correlations are interesting, but this is a subject about which humans know very little--and economists know even less.

As an initial exploration, okay. As a finding, not there yet.

Patrick Emerson said...

Economists are less than human!?! Shocking.

That aside, I am not sure what is more appropriate: true happiness, which we can never hope to measure, or self-perception of one's own happiness. Said another way, if I THINK I am happy, does that in itself make me happy? Perhaps not, but maybe that is what matters - at least in this context.