It is well known that in wealthy countries, further improvement of average incomes has only a small impact on average life satisfaction. Diametrically opposed explanations have been offered.
On the one hand, there are those who say that if rising
incomes have little effect on average life satisfaction, that must mean that
their apparent impact on living standards is a mirage – rising incomes do not
count as progress.
On the other hand, there are those who say that average life
satisfaction numbers are garbage – you can’t expect to get useful information
by asking people to rate their satisfaction with life on a 10-point scale. They
say that rising average incomes provide an accurate picture of progress.
In my view, those opposing explanations are both unhelpful
to an understanding of the relationship between living standards and life
satisfaction. In my book, Freedom,
Progress, and Human Flourishing, I explain that rising incomes result
in actual improvements in living standards, and count as progress because that
is what people aspire to have. Since self-direction is integral to human
flourishing, it is obvious that progress is inextricably linked to conditions
that enable individuals to meet their aspirations more fully. In the book, I
also explain why I think average life satisfaction is an appropriate measure of
psychological well-being at a national level. I suggest that psychological
well-being, along with wise and well-informed self-direction, is one of several
basic goods that a flourishing human could be expected to have.
The moving benchmark problem.
The failure of life satisfaction to reflect improved living
standards is explained as follows in my book:
“The happiness surveys behind this puzzle, often referred to
as the Easterlin puzzle, ask respondents to rate their lives relative to
benchmarks such as the best possible life. Let us assume that when a person in
a high-income country, call him Bill, answered that question in 1990, and he
gave a rating of 8/10 for his life. Since then, Bill’s income has increased at
about the same rate as the average for the country in which he lives, and there
have been no abnormal changes in the circumstances of his life. In January 2020
… he again rated his life as 8/10. …
Bill’s income has risen, but his rating of his life has not
risen.
The problem is that the survey prompted Bill to rate his
life against a moving benchmark. Bill’s view of what constitutes the best
possible life is likely to have risen over time. The people he sees living such
a life have obtained access to better communication technology, and other
things that have potential to enhance the quality of life. If you ask people to
rate their current lives relative to a benchmark that is moving upwards over
time, measurement error is inevitable.”
Ways to avoid the moving benchmark problem include the ACSA
approach previously discussed on this blog (here
and here).
For reasons best known to themselves, happiness researchers have not shown much
interest in using that approach to test the extent to which life satisfaction
measures are distorted by moving benchmarks.
Living standards comparisons
The moving benchmark problem does not arise when people are
asked how their standard of living compares with that of their parents when
they were about the same age. Surveys of that kind have tended to provide
information consistent with perceptions of ongoing progress with rising incomes
in wealthy countries.
There is no plausible reason why such inter-generational comparisons
should be viewed as less credible than life satisfaction ratings, or vice
versa. As I see it, they are cognitive evaluations of different things. The
intergenerational comparisons are measuring perceptions of progress, and the
life satisfaction ratings are measuring current psychological well-being.
Merging life satisfaction and living standards evaluations
In order to obtain a better understanding of the linkage
between perceptions of progress and current life evaluations, it is necessary
to bring those different cognitive evaluations together in some way. That has
been made possible by inclusion in the latest round of the World Values Survey
of a question asking respondents whether their living standards are higher,
lower, or about the same as those of their parents when they were about the
same age. The graphs shown above were prepared using the excellent Online Data Analysis
facility of the World Values Survey. Information is shown for the United States
and Australia, but similar pictures emerge for other high-income countries.
The most obvious point illustrated by the graphs is that
people tend to be much less satisfied with their lives if they perceive that their
living standards are lower than those of their parents at a comparable age. Their
perceptions that their living standards have fallen tends to make them feel
grumpy about life.
The second point to emerge is that the life satisfaction
ratings of those who perceive that their living standards are better than those
of their parents are not much higher than for those who perceive that their
living standards are about the same as those of their parents. Their
perceptions of progress are not reflected to any great extent in their
satisfaction current lives. That result is consistent with my view that life
satisfaction is a poor indicator of the extent to which people meet their
aspirations for higher living standards.
Implications
Perceptions of change in living standards that emerge from
intergenerational comparisons are related to the recent history of economic
growth in different countries. The greatest percentage perceive that their
living standards are higher than their parents in countries that have sustained
high rates of growth in per capita GDP over several decades. Of the 54
countries for which data are available, Vietnam has the greatest percentage in
that category (90%) and Iraq has the lowest (21%). The corresponding
percentages for Australia and the U.S. are 56% and 48% respectively.
Percentages who perceive that their living standards are
lower than their parents follow a broadly similar pattern, but in most
countries are within the range of 10% to 25%. Of the 54 countries, Zimbabwe is
the only one where more than half of respondents perceived that their standard
of living was lower than that of their parents. The corresponding percentages
for Australia and the U.S. are 15% and 19% respectively.
The age structure of people who perceive themselves to be
worse off than their parents suggests that this source of grumpiness is likely
to pose a greater problem in Australia and the U.S. in the years ahead. The
incidence is lowest among the 65+ age group (7.6% for Australia and 8.4% for
the U.S.). The highest incidence in Australia is in the 25-34 age group (20.1%)
and in the U.S. in the 35-44 age group (26.4%).
Conclusions
Average life satisfaction provides useful information on
psychological well-being at a national level, but is a poor measure of the
extent to which people are meeting their aspirations for higher living
standards. As expected, people who perceive their standard of living to be
higher than that of their parents, do not rate their life satisfaction much
higher than those who perceive their standard of living to be about the same as
that of their parents. However, people who perceive their standard of living to
be lower than that of their parents have markedly lower life satisfaction than
the other groups. The percentage of grumpy people in countries such as
Australia and the U.S. seems set to rise in the years ahead unless opportunities
improve for young people to meet their aspirations for higher living standards.
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