Tuesday, October 1, 2013

What has happened to average world happiness levels since the GFC?

Despite the Global Financial Crisis (GFC) and its aftermath, there has been a small improvement in average life satisfaction of the world population over the period from 2005-07 to 2010-12. That finding is based on data from the Gallup World Poll, and is reported in the World Happiness Report 2013 edited by John Helliwell, Richard Layard and Jeffrey Sachs.

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It seems to me that the report may actually understate the extent to which most people in the world have perceived their lives to have improved since the GFC. I will give my reasons for that view toward the end of the article, after I have presented some of the Report’s findings.

Chapter 2 of the World Happiness Report indicates that increases in average life satisfaction occurred mainly in Latin America and Caribbean countries, the Commonwealth of Independent States (Russia and other former Soviet countries), East Asia, Sub-Saharan Africa and Southeast Asia. It suggests that these increases were offset to a large extent by declines in the Middle East and North Africa, South Asia, Western Europe and NANZ (North America, Australia and New Zealand).

Significant improvements in average life satisfaction occurred in 16 of the 21 countries in Latin America and the Caribbean and significant declines occurred in only 2 of those countries. The increases for Ecuador, Nicaragua, Paraguay, Peru and Chile were all greater than 0.7 (on the zero to 10 Cantril scale), putting those countries among the top 12 countries in the world in terms of improvement in average life satisfaction.
The pattern was more varied in other regions. For example, average life satisfaction declined in 7 of the 17 countries of Western Europe but increased in 6 of those countries. Average life satisfaction declined in the United States and New Zealand, but did not change much in Canada and Australia.

Analysis in the report suggests that the main reasons for the improvement in life satisfaction in Latin American and Caribbean countries was growth of average income levels, combined with substantial declines in perceived corruption and a substantial improvement in life-choice freedom.

The Report includes a special analysis of the reasons for the decline in life satisfaction in Greece, Spain, Italy and Portugal, the four countries of Western Europe in which life satisfaction declined to the greatest extent during the Eurozone crisis. The declines in life satisfaction in those countries were far greater than could be explained by the decline in income alone. Declines in perceived life-choice freedom, social support and generosity and increases in perceived corruption went some of the way toward explaining the decline in life satisfaction, but left a substantial amount unexplained. Inclusion of unemployment in the analysis suggested that this variable also had a significant independent impact.

The authors note that Greece stands out among the four countries as having the largest decline in life satisfaction that cannot be explained by any of the above factors. They suggest that another factor that might be of particular importance in Greece is a decline in trust in key institutions, such as the legal system.
It might have been illuminating to include Ireland in this analysis because that country was also severely affected by the GFC and still has an unemployment rate of 14%, which seems alarmingly high even though only about half the rate in Greece and Spain.  In contrast to the four countries included in the analysis, average life satisfaction levels in Ireland remained virtually unchanged over the period considered.

The time has come to discuss why I think the Report may actually understate the extent to which most people in the world have perceived their lives to have improved since the GFC. In my view there is a problem in attempting to measure changes in world happiness levels by comparing the results of successive surveys. The problem arises because the measurements have been made relative to a reference point – perceptions of the best possible life – that changes over time, and changes to a different extent in different parts of the world.

It seems to me that while it would be reasonable to expect that people in Europe would not have changed their perception of the best possible life to any great extent over the last five years, that is unlikely to be true of people in a country such as China, where high levels of economic growth would have been accompanied by broadening horizons and rising aspirations. I think that means that the World Happiness Report has probably tended to understate progress toward a better quality of life in countries with relatively rates of economic growth and thus to understate the increase in average happiness levels of the world population.

Perhaps it would help to clarify the point I am trying to make if I elaborate on the implications of rising aspiration levels in China for measurement of happiness. I noted on this blog a few years ago that Gallup data for 2008 indicates that the rating the Chinese gave to ‘life five years ago’ is lower than the average life satisfaction rating for just about every country in the world outside Africa. I also noted that the rating the Chinese gave to their lives five years ahead was higher than average life satisfaction in some western European countries. I went on to predict:
‘When they appraise their current quality of life in five years time they will realize that they still have somewhat further to go before attaining “the best possible life”. But they are not likely to become discontented while they continue to experience the economic growth they have come to expect’.

The World Happiness Report shows only a small improvement in average life satisfaction in China, from 4.7 in 2005-07 to 5.0 in 2010-12. We don’t have data on how much the Chinese have perceived their lives to have improved over the last five years, but it could well be by about the same magnitude as the improvement they perceived in the five years to 2008 (1.2 points). What we do know is that the Chinese remain just as optimistic about the prospects for improvement in the quality of their lives over the next five years as they were in 2008 (with an average improvement of 1.5 points expected in both instances).

We can be confident that the current optimistic expectations of the Chinese people will not be fully reflected in their average happiness levels in five years time because expected improvements in the quality of life in China over that period are likely to be accompanied by a further elevation in perceptions of the ‘best possible life’. Even if optimistic expectations are met concerning economic growth and other relevant factors, it is likely that there will be little increase in average happiness levels in China. Changes in the average happiness data provide little information on the extent to which people in China perceive that their lives are improving.

If we want to know the extent to which Chinese people perceive that their lives are continuing to improve we need information on the rating they give to their past lives that is comparable to the rating that they give to their current lives. As noted above, in the past the Gallup organization has in the past collected data on ‘life five years ago’ when collecting evaluations of ‘life today’. Unfortunately, this information has not been collected in recent surveys. Hopefully, the relevant information will be collected regularly in future.

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