The Welfare Costs of Well-being Inequality

Leonard Goff, John F. Helliwell, Guy Mayraz

NBER Working Paper No. 21900
Issued in January 2016, Revised in December 2016
NBER Program(s):DEV, PE, POL

If satisfaction with life (SWL) is used to measure individual wellbeing, the dispersion of its distribution offers a comprehensive measure of inequality that subsumes the many and various component forms of inequality in particular domains. The cross-country correlation between the level of SWL and its dispersion may thus offer a useful measure of the degree to which happiness differences are related to differences in inequality. A major concern, however, is spurious correlation due to the bounded scale on which SWL is reported. We examine this possibility, and show (i) that the correlation between SWL and its dispersion is only marginally attenuated when allowing for bounded scale reporting, including a purely ordinal measure of dispersion, (ii) that it is stronger in the subset of individuals who care most about inequality, and (iii) that it extends to contributors of SWL that are known to be affected by inequality, with SWL levels ruled out as a mediating variable. These findings allay the concern with spurious correlation, and support the use of the SWL dispersion as a comprehensive measure of inequality. Among rich countries, differences in the variance of SWL explain about as much of the difference in mean SWL as differences in GDP per capita.

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Document Object Identifier (DOI): 10.3386/w21900

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