Friday, June 20, 2008

What is the best predictor of the happiness of low-income earners?

The most obvious answer would be average income level. However, the probability of happiness can vary markedly among countries with similar income levels. This is apparent when we look at the extent to which average income levels in different countries influence the chances of happiness of those on lower, middle or upper incomes. For example, although lower income Australians have about the same probability of reporting that they are satisfied with life as might be expected on the basis of their income levels (70 percent), the probability of lower income Mexicans reporting that they are satisfied with life is about 34 percent greater than expected (75 rather than 41 percent) and the probability of lower income Japanese reporting that they are satisfied with life is about 21 percent lower than expected (46 rather than 67 percent). (These results were obtained by use of regression to fit an equation relating the probability of people on lower incomes being satisfied with life to per capita income level. Life satisfaction data was for 66 countries for 2000 and obtained from: : Ronald Inglehart et al, Human Beliefs and Values, Siglo XXI Editores, Mexico, 2004, A 170).

Some might suggest that measures of income inequality could be used to predict the happiness of low-income people. However, there is no clear evidence that happiness inequality is related to the extent of income inequality (see here).

It turns out that the happiness of those on higher incomes in individual countries is a good predictor or the happiness of low-income people in those countries. Lower income people tend to be less happy than those on higher incomes but the margin is fairly consistent across countries – if those on upper incomes are happy, those on lower incomes also tend to be happy. There are some exceptions. For example, data for 2000 indicates that lower-income Armenians were much more satisfied with life and low-income South Africans were much less satisfied with life than would be predicted on the basis of the happiness of those with higher incomes.

In general, however, a very large proportion of the variation in the probability of people on lower incomes claiming to be satisfied with life can be explained simply in terms of the proportions on middle incomes who claim that they are satisfied with life.

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