NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Happiness of Nations

"As economies get richer, they can afford to question the need for further riches. In a country where people are starving, economic growth remains regarded as a vital objective to overcome hunger and other poverty problems."

Traditionally, economists and others measure a nation's progress and prosperity by looking at Gross Domestic Product (GDP), that is, the total output of good and services a country produces for its own inhabitants or for sale to other nations. There is a growing tendency, however, for economists to consider another measure, Gross National Happiness.

"For the wealthy countries of the world, though not the developing countries, our instinct is that it would be a mistake in the twenty-first century to focus excessively on ways to raise the level or growth rate of GDP," write David Blanchflower and Andrew Oswald in Happiness and the Human Development Index: The Paradox of Australia (NBER Working Paper No. 11416). "The industrialized countries should ... use a broader conception of well-being than the height of a pile of dollars." As economies get richer, they can afford to question the need for further riches. In a country where people are starving, economic growth remains regarded as a vital objective to overcome hunger and other poverty problems.

One of the best-known attempts to move away from a simple reliance on GDP as a measure of welfare is the Human Development Index (HDI) of the United Nations. Published every year, the HDI is a score that amalgamates three indicators: lifespan, educational attainment, and adjusted real income.

In this paper, Blanchflower and Oswald question the soundness of this measure when the 2004 Human Development Report places Australia at third in the world, ahead of all the other English-speaking countries. The top-ten countries, in order according to that index, are: Norway, Sweden, Australia, Canada, Netherlands, Belgium, Iceland, United States, Japan, and Ireland.

The HDI, the authors note, is a mechanical criterion. "It does not capture the contentment or psychological state of individuals," that is, their mental well being. "Emotion surely ought to play a role in a measure of human well being," they write. Their goal is not to establish that the HDI measure of human well being is incorrect. Rather, their stated goal is to improve upon the traditional narrow economic focus on real income and growth. In that regard, they draw on recent academic literature exploring the "economics of happiness," studies that make use of how people in different countries rate their own happiness or well being. The authors suspect that HDI data and subjective well-being data could play complementary roles.

Using new data on approximately 50,000 randomly sampled individuals from 35 nations in 2002, Blanchflower and Oswald show that Australians have some of the lowest levels of job satisfaction in the world. Only Japan, Taiwan, and six East European nations (including Russia) do worse in this regard. Moreover, in a sub-sample of English-speaking nations where the common language should help such subjective measures to be more reliable, Australia performs poorly on a range of four other happiness indicators. The authors note that comparisons of people's answers regarding happiness in one country to answers to the same questions in another country is "probably hazardous" because of different languages and cultures that may cause biases in such happiness surveys.

In the "world league table" on happiness, Australia performs respectably in these four categories outside of job satisfaction. Ranking the 35 nations by all five categories, Australians place their happiness level at 5.39 on a scale that runs from a low of one to a high of seven, making it the twelfth happiest country in this sample. By comparison, Austria has a value of 5.54, Brazil 5.42, Switzerland 5.51, and the United States 5.52.

Happiness measures, Blanchflower and Oswald add, "can tell politicians and others how citizens value the different effects upon well-being of diverse influences such as unemployment, the divorce rate, real income, friendship, traffic jams, crime, health, and much else. If we can learn to exploit the power of statistical happiness equations, it should be possible to make public policy choices in a more coherent way than before."

Some recent findings from statistical happiness research include the following, the authors note in their paper:

1. For a person, money does buy a reasonable amount of happiness. But it is useful to keep this in perspective. Very loosely, for the typical individual, a doubling of salary makes a lot less difference than life events like marriage.

2. Nations as a whole, at least in the West, do not seem to get happier as they get richer.

3. Happiness is U-shaped in age - that is, it falls off for a while, then stabilizes, and rises later in life. Women report higher well-being than men. Two of the biggest negatives in life are unemployment and divorce. More educated people report higher levels of happiness, even after taking account of income.

4. At least in industrial countries such as France, Britain, and Australia, the structure of a happiness equation looks the same.

5. There is adaptation. Good and bad life events wear off - at least partially - as people get used to them.

6. Comparisons matter a great deal. Reported well being depends on a person's wage relative to an average or "comparison" wage. Wage inequality depresses reported happiness in a region or nation. But the effect is not large

-- David R. Francis

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