Do major cities create unhappy Australians?

Sydney's eastern suburbs

“Major cities create unhappy Australians”. That headline jumped out at me when I was doing an internet search recently. The source was The Melbourne Newsroom – a media unit at the University of Melbourne. The news release tells us that Australians who live in rural locations or towns of less than 1,000 residents “have significantly higher life satisfaction than those living in major cities”. (Major cities have more than 100,000 residents.)

The news release is linked to a recent publication based on the highly regarded HILDA survey undertaken by Melbourne University. The survey results suggest a boost to average life satisfaction (on the 11 point scale from 0 to 10) of 0.127 points for females and 0.108 points for males from living in a rural location or town rather than a major city. That might seem small, but it appears to imply that living in a major city has an adverse impact on life satisfaction of similar magnitude to being unemployed or divorced.

The authors of the HILDA publication conclude:

“other things being equal, the major cities are the least desirable places to live”.

The qualification in that statement is important. The authors go on to point out that the undesirability of living in cities is somewhat counteracted by the fact that the major cities contain areas of greatest socio-economic advantage.  Life satisfaction is influenced by the effects of the relative socio-economic advantage or disadvantage of the area in which an individual lives.

The main reason I was sceptical when I read the headline “Major cities create unhappy Australians” was because earlier in the day I had read a paper by Arthur Grimes and Marc Reinhardt which found that the differences between life satisfaction in rural and urban areas in other high-income OECD countries disappeared in a model controlling for other variables. The other variables controlled for were own income and reference income (mean income within a country of individuals of the same gender, age and employment status).

A study examining differences between life satisfaction of rural and urban residents of Victoria, undertaken a decade ago by Dianne Vella-Brodrick et al, also found that the significance of rurality disappeared when other variables were controlled for. The other variables in the model included satisfaction with community and perceived level of satisfaction with distance from services.

In a post I wrote on this blog a few years ago I considered the differences at a regional level between the stories told by a range of wellbeing indicators in Victoria. The (rural) local government areas (LGAs) with higher average subjective well-being (SWB) also tended to have higher ratings in terms of satisfaction with being part of the community, social support (ability to get help from friends), citizen engagement (e.g. attending town meetings, writing to politicians), safety (e.g. feeling safe walking in the local area at night) and volunteering. However, those LGAs tended to have lower household income, lower satisfaction with work-life balance and less acceptance of diverse cultures. The latter variables tended to have higher values in Melbourne and in LGAs close to Melbourne.

Do those results suggest major cities create unhappy Australians? I don’t think so. As discussed in a more recent post, major cities in Australia are ranked among the most liveable in the world. People who choose to live in major cities may well do so for good reasons, in full knowledge that they are making choices that are likely to reduce their life satisfaction. Life satisfaction is important, but it is not the only argument in individuals’ utility functions. For example, it can be rational for people to sacrifice some life satisfaction now to obtain more life satisfaction later (e.g. by accumulating wealth to fund their retirement in a more pleasant location). There is also some evidence that many people are prepared to sacrifice their own happiness in making location choices in order to provide better opportunities for their children.

How close is the relationship between freedom and life satisfaction?

I would be happy to declare myself a fan of the OECD’s Better Life index if it included an appropriate indicator of freedom. Perhaps the authors might argue that freedom is adequately covered by “civic engagement”. However, that seems like arguing that it is not possible for people to suffer persecution from government when they have the right to vote. I don’t think J S Mill would have been impressed:

“The limitation … of the power of government over individuals, loses none of its importance when the holders of power are regularly accountable to the community, that is, to the strongest party therein” (On Liberty, Chapter I).

Perhaps the authors of the index see freedom as a characteristic of the social environment that people desire because it enables them to have greater life satisfaction, rather than as one that contributes directly to the quality of life. I don’t buy that argument. Humans have a passion to control their own lives (even though many have no qualms in voting to have governments restrict the freedom of others). I predict that many users of the Better Life index would give a higher weight to individual freedom than to many of the other items included in the index, if they were given the opportunity to do so. (One of the features of the Better Life index is the ability of users to assign whatever weights they choose to the variables that are included in the index.)

It is possible, however, that freedom makes little difference to country rankings. That might happen if freedom indexes are highly correlated with life satisfaction. I am focusing attention here on the relationship between freedom and life satisfaction because most of the 11 components of the OECD’s Better Life Index are correlated with life satisfaction. Civic engagement is one of the exceptions. The others are education, safety and work-life balance.

The freedom indexes I have chosen to consider are the Fraser Institute’s economic freedom and personal freedom indexes. Both of those indexes are highly correlated with life satisfaction (r = 0.73 for personal freedom and r = 0.61) in OECD countries. A regression analysis shows both variables to have a positive (significantly greater than zero) influence on life satisfaction, together explaining 68% of the variation in life satisfaction among OECD countries. (The data and results are available from the author.)

The relationships between life satisfaction and the two freedom indexes are shown in the charts below.

There seems to have been a fairly strong tendency for people who argue that government policies should be directed toward raising average life satisfaction to advocate policies involving restrictions on freedom. Such people have been barking up the wrong tree. The countries with highest average life satisfaction are those with the least restrictions on economic and personal freedom.

Postscript: 
 I neglected to refer to a recent article by Boris Nikolaev entitled "Economic Freedom and the Quality of Life". This article provides a fairly extensive discussion of the relationship between economic freedom and the quality of life at a national level. 

  

Will future technological advances provide widespread opportunities for human flourishing?

A range of issues related to this question have been discussed in a recent series of posts on this blog. My conclusions are summarised below.

Recent trends in productivity growth do not provide persuasive evidence that the rate of technological advancement is slowing.

On the one hand, we have techno-pessimists such as Robert Gordon who argues that technological progress is slowing down.  On the other hand, we have techno-optimists such as Erik Brynjolfsson and Andrew McAfee who argue that the global economy is on the cusp of a dramatic growth spurt driven by smart machines taking advantage of advances in computer processing, artificial intelligence, networked communication etc.

My post discussing these issues notes that the evidence does not support the view that there was a general slow-down in productivity growth in high-income countries prior to the global financial crisis and great recession. In only about half of the countries covered by the OECD data was the rate of multifactor productivity (MFP) growth during the 2001 to 2007 lower than that in 1995 to 2001.

It seems likely that the slow-down in measured productivity growth in the US and some other countries may be attributable, in part, to difficulty in measuring the outputs of the information and communications technologies (ICT) industries - particularly free content provided on the internet.  As means are found to require users to pay for more internet content it seems likely that will, of itself, make the productivity numbers for ICT industries look better even though underlying productivity will not have improved.

A post discussing recent OECD research on technological diffusion gaps at firm level suggests that there is a technological diffusion problem rather than a slow-down in technological advances. Productivity growth of global frontier firms has remained relatively robust, despite the slowdown in productivity growth in many OECD countries during the 2000s. A widening technological diffusion gap is particularly evident for service sector firms.

Technological innovation is likely to destroy a substantial proportion of current jobs, but it will not necessarily be more disruptive than it has been in the past.

As discussed in my post ‘Is average over?’ there is strong evidence of job polarization in the US. Research by David Autor shows that the occupations experiencing loss in employment are in the middle of the distribution, with the locus of displacement of middle-skill employment moving over time into higher skilled categories.  The pace of employment gains in low wage, manual task-intensive jobs has been increasing since the 1980s. The growth of high-skill, high wage occupations decelerated markedly in the 2000s, with only a modest recovery between 2007 and 2012. Autor suggests that the deceleration of growth of high pay jobs was associated with macroeconomic events which led to a sharp deceleration in computer investment (the bursting of the dot-com bubble, followed by the collapse of the housing market and the ensuing financial crisis).

Australian research, published in a recent report by CEDA (discussed here) shows a similar pattern of job displacement. The jobs that are disappearing involve routine tasks, not just low-skilled tasks. Researchers estimate that over the next 10 to 15 years about 40% of jobs have a high probability of being susceptible to technological change in Australia.

Growth in labour demand will occur in occupations that tend to involve perception and manipulation, creative intelligence and/or social intelligence. Many jobs will be concerned with the creative application of technology to solving problems.

In recent years enough new jobs have been created in Australia at a rate sufficient to replace those that have disappeared.

Some authors have suggested that the world faces a period of extraordinary economic disruption over the next few decades. My reflection on economic events over the last 40 years (in this post) suggest to me that perceptions of extraordinary disruption are a product of the economic stagnation in many high-income countries during the last decade.

During the 1970s I was under the impression that the pace of change was quickening, but that was an illusion. The economic disruption occurring in the wake of the first oil price shock and the emergence of stagflation certainly involved a quickening in the rate of change relative to the abnormal stability of the 1950s and 60s. Looking back now, however, economic change over the last 40 years seems to have been less about quickening than about fits and starts.

I suspect that when people look back in 40 years’ time they are they are not likely to perceive that the first half of the 21^st century was extraordinarily disruptive. They are more likely to perceive this to have been a period of fairly normal disruption, with the pace of change being similar to that occurring on average since the beginning of the industrial revolution.

There is potential for future technological advances to lift average real wage levels in high-income countries.

At an aggregate level, innovations that raise labour productivity tend to increase the demand for labour because they make labour more productive. International comparisons show that real wage levels are more or less proportional to average productivity levels.

Real wage growth has not been quite proportional to labour productivity growth in high-income countries where labour’s share of national income has fallen over recent decades. As discussed in this post, average real wages in high-income countries have typically been growing at a rate around 0.35% per annum less than the median labour productivity growth of 1.64% per annum.

In most countries the most plausible reason for the failure of real wages to keep pace with the growth of labour productivity is that capital deepening (the growth of capital per unit of labour) has not been sufficient to offset the labour augmenting (or labour saving) bias of technological progress. (See my post discussing the elasticity of substitution between capital and labour.) In other words, investment levels have been too low.

A slowdown in the contribution of investment to GDP growth was evident the United States, Europe and Japan in the period 2000-07 and was accentuated after the global financial crisis.  Investment levels in Australia remained strong until recently, mainly reflecting investment in mining to supply inputs to the construction boom in China.

Investment in natural resource development has had a modest direct impact on demand for labour in Australia, but the impetus it has provided to overall economic growth in Australia had a more profound indirect impact. The impacts on labour demand of the growth of urban centres as hubs of highly innovative activity are similar in some respects.  As discussed in my post on the competitiveness of cities, when cities become attractive places for location of technology-intensive activities that tends to increase demand for many categories of labour including teachers, nurses and building workers.

Technological advances offer the potential for ongoing improvements in the quality of life.

It is sometimes suggested that because most people in high income countries are already highly satisfied with their lives, the additional opportunities provided by technological advances are not worth having. However, the benchmarks that people use when asked to evaluate the quality of their lives tend to change with changes in their perceptions of what might be possible. As noted in an earlier post, survey data indicates that a substantial proportion of people who claim to be completely satisfied with their lives (above 40% in some countries) are in complete agreement with the proposition that “because of science and technology there will be more opportunities for the next generation”.

In my last post I considered whether the disruptions associated with technological innovations cause a great deal of anxiety and unhappiness. There is a great deal of evidence many people who lose their jobs or feel that their jobs are threatened do suffer anxiety and unhappiness. However, these feelings are strongly associated with the state of the economy and the prospects of obtaining alternative employment.

Discussions of technological unemployment tend to focus unduly on potential job losses and to overlook the impact of new technology on economic growth and the associated expansion of employment opportunities. Many people will lose jobs as a result of technological change at some point in their lives. Most will readily find alternative employment, but some people are likely to have their lives severely disrupted by the high levels of unemployment that may persist in some regions where declining industries have been major employers.

If governments want to ensure that technological advances provide widespread opportunities they should stop protecting narrow interests.

Recent OECD research on technology diffusion gaps (discussed here) suggests that the ability of firms to learn from the global frontier is stronger in economies where there is less protection of domestic interests through international trade barriers, product market regulation, employment regulation and bankruptcy laws that that leave people with valuable skills employed in zombie firms. The research also suggests that skill mismatches can be exacerbated by high transactions costs in housing markets (e.g. stamp duties on transfers).

The competitiveness of cities as locations for technology-intensive activities is likely to be adversely affected by powerful interest groups opposed to increases in population density and innovations that have potential to reduce the cost of transport, including congestion costs. (See post on competitiveness of cities.)

There is increasing recognition that excessive regulation to protect intellectual property rights is discouraging the diffusion of new technology and limiting the opportunities created by technological progress. As discussed in a post on this topic, the economic benefits of copyright and patent laws derive from the incentive they provide to authors and inventors to engage in creative activity. If granted appropriately such monopoly rights could therefore be expected to result in more technological progress and higher productivity growth than would otherwise occur. However, in recent decades these regulations have been used to provide monopoly rents to holders of rights far beyond those required to provide incentives for creative activity.

* * *

My general conclusion is that if governments were to do no harm we could be much more confident that future technological advances would provide widespread opportunities. That is probably too much to ask, but it might be reasonable to expect governments to do less harm than at present. For example, if governments want to help unemployed people who live in regions of persistently high unemployment, they should consider welfare measures designed specifically to assist those most affected (including relocation and early retirement). This is likely to be a less costly approach than the alternatives of supporting uncompetitive firms and industries through subsidies, tariffs, anti-dumping measures, government procurement policies etc. or funding uneconomic infrastructure projects. 

This series of posts has focused on likely trends over the next few decades and has not addressed longer term issues that may emerge as robots come to play more important roles in our lives. I might have something to say about those issues after reading and thinking more. One day I might even feel able to write sensibly about the implications of the 'singularity' for individual human flourishing.


Postscript:
I think William Nordhaus may be writing sensibly about the timing of the 'singularity' and its implications for real wages in his paper: "Are We Approaching an Economic Singularity?" 

How will future technological advances impact on the quality of life of people in high-income countries?

As discussed in earlier posts, I am fairly optimistic about the potential for technological progress to continue to provide widespread economic opportunities for people in high-income countries. In this post I want to consider two arguments advanced by people who are pessimistic about the potential for technological advances to continue to improve the quality of lives of people in high income countries. 

The first argument of the pessimists is that because most people in high income countries are already highly satisfied with their lives, the additional opportunities provided by technological advances are not worth having. As I see it, this fails to recognize that the benchmarks that people use when asked to evaluate the quality of their lives tend to change with changes in their perceptions of what might be possible. It would be unreasonable to expect that peoples’ perceptions of what it means to be living the best possible life will remain unchanged over the next 50 years.

Introspection is probably sufficient to persuade most readers that it is possible to be highly satisfied with life and nevertheless perceive that there is potential for the lives of future generations to become even better in some respects. Some formal evidence that this happens was provided in an article on this blog last year. Using World Values Survey data for a range of high-income countries the article demonstrates that a substantial proportion of those people who claim to be completely satisfied with their lives (above 40% in some countries) are in complete agreement with the proposition that “because of science and technology there will be more opportunities for the next generation”. The corresponding percentages who completely disagree with that proposition are tiny.

The second argument of the pessimists is that the disruptions associated with technological innovations cause a great deal of anxiety and unhappiness. 

It is obvious that many people who lose their jobs or feel that their jobs are threatened do suffer anxiety and unhappiness. As previously discussed here, rising unemployment has been associated with declines in life satisfaction in countries of southern Europe following the global financial crisis.

A recent article by Rainer Winkelmann has drawn several important conclusions about the relationship between unemployment and life satisfaction from German panel data:

• Over the last three decades, average life satisfaction of unemployed people – around 5.5 to 6.0 on a ten point scale - has always been at least one point below that of employed people.
• Life satisfaction tends to decline prior to unemployment and does not fully rebound to pre-unemployment levels four years after an episode of unemployment.
• About half the people who became unemployed experienced no reduction in life satisfaction. Unemployed people experience a substantial reduction in life satisfaction (and find a job more quickly) when they have a strong work ethic.
• Duration of unemployment seems to have no impact on the life satisfaction of people who are unemployed.
• There is a strong association between the aggregate unemployment rate and average life satisfaction levels even for employed workers, reflecting the negative impact of perceived job insecurity.

 Australian data also suggests that the level of job insecurity is strongly related to the state of the economy. The Household Financial Comfort Survey (conducted by Me Bank) shows marked fluctuations from quarter to quarter in perceptions of how easy it would be for workers to obtain another job if they become unemployed. In June 2015, casual workers were most pessimistic about finding another job (85% said it would be difficult), followed by self-employed workers (63%) part-time workers (63%) and full-time workers (51%). However, NAB’s Quarterly Australian Consumer Anxiety Index suggests that job security is a much less important source of anxiety for Australians than government policy, cost of living, ability to fund retirement, and health.

Discussions of technological unemployment tend to focus unduly on potential job losses and to overlook the impact of new technology on economic growth. It is far from obvious that technological innovation reduces employment opportunities at an economy-wide level. The chart below shows the annual rates of growth in employment and multi-factor productivity (probably the best measure available of technological innovation) for the period 1995 to 2013 for those high-income countries for which comparable OECD data is available.

 The chart certainly does not show a general pattern of low employment growth in countries with relatively high levels of technological innovation. If anything, it suggests the opposite. The modest growth in employment in Korea may reflect limits on growth in available labour since the unemployment rate in that country has been relatively low (less than 4% of the civilian labour force in each year of the last decade) and a rising percentage of the age 15 to 64 population is in employment.

High rates of growth in employment at a national level will not necessarily prevent the emergence of persistently high levels of unemployment in regions where declining industries have been major employers. This poses a policy problem in helping older workers to cope with the changes in their circumstances. The current policy framework in Australia seems to provide incentives for many such people to migrate from long term unemployment to disability pensions. The problem is likely to be exacerbated by increases in the age at which people become entitled to aged pensions. Past experience suggests that regional development policies do not provide a panacea for regions that have little to offer investors other than an aging unskilled workforce. It is difficult to see the problems being resolved by adopting an NZ style investment approach to removing people from unemployment benefits as proposed in the McClure report (discussed here) but, hopefully, I am wrong about that.

In a chapter in the CEDA report Australia’s Future Workforce? Andrew Scott suggests that one of the lessons learned from the decline of employment in manufacturing locations since the 1970s “is that you cannot just take middle-aged workers out of factory environments, put them into classrooms and then expect them to immediately learn new skills for new jobs in that unfamiliar setting”. He suggests that the approach to active labour market policies adopted in Denmark has much to commend it. I will remain unpersuaded until I see a good cost benefit study of the policies adopted in Denmark, comparing the approach adopted there to a range of alternatives including offering early access to aged pensions (at say, age 60) at a lower than normal rate of benefit, to unemployed people in regions of high unemployment.

To sum up, I don’t think there are strong grounds for pessimism about the ability of technological progress to provide widespread opportunities for people in high-income countries to improve the quality of their lives. It is important to recognize, however, that many people will lose jobs as a result of this process at some point in their lives. Most will readily find alternative employment, but in regions that are adversely affected by technological unemployment some people are likely to have their lives severely disrupted.

Have Australians become highly pessimistic about prospects for future generations?

On “Personal Reflections” last week Jim Belshaw mentioned a conversation with one of his daughters who said she and most of her generation had given up on the idea of home ownership because it was no longer an achievable dream. I would not be surprised if many young Australians hold such views these days.

Jim mentioned his conversation in the lead-in to his discussion of the results of some polling by Essential Research, which asked respondents whether they think that over the next 40 years various groups of people will be better off or worse off than they are today. The results are surprisingly negative. Apparently, only 14% think that retirees will be better off. The corresponding numbers for other groups are: 15% for the middle aged; 14% for families with school aged children; 18% for young adults and 24% for children.

I suspect that respondents may have been primed to be somewhat pessimistic in their responses by preceding questions which Essential asked in the survey. Those questions were about awareness of the Intergenerational Report, consequences of the changing population age structure and climate change.

The results of a poll conducted by Essential after last year’s budget are similarly pessimistic. The poll suggests that 21% of Australians think that the standard of living for the next generation will be better than today, 27% think it will be much the same and 48% think it will be worse (4% don’t know).

An Ipsos Mori survey, reported in The Guardian in April last year, asked a range of questions and seems to have obtained somewhat more optimistic responses. When all respondents were asked do “you feel that your generation will have had a better or worse life than your parents' generation”, 40% said better. Responses to that question by people under 30 were less optimistic: 30% said better. When all respondents were asked “do you feel that today's youth will have had a better or worse life than their parents' generation”, 30% said better. Again, responses by people under 30 were more pessimistic: only 22% considered that today’s youth would have a better life than their parents.

The Ipsos Mori (I.M.) survey suggests that Australians are more optimistic than people in most high income countries, although they are much less optimistic than people in China and some other countries experiencing rapid economic growth. A similar picture emerges from surveys by Pew Global which asked: “When children today in (survey country) grow up, do you think they will be better off or worse off financially than their parents?”. The Pew data is available for a larger number of countries and for both 2013 and 2014. Unfortunately data for Australia (and some other countries) was only collected for 2013.

The results of the I.M. and Pew surveys can be compared from data shown in the graph below. In constructing the indexes shown in the graph I assigned a value of 1 to “better”, -1 to “worse” and 0 to “same” and “don’t know” (and averaged the I.M. data when two years data was available).

In order to put some perspective on this data it would be desirable to compare it with earlier surveys. I have found some information on an international survey undertaken by the Angus Reid Group and reported in The Economist in August 1998.  The 16,000 adults included in the survey were asked about future prospects for themselves and their children, and the results were used to rank the 29 countries covered according to the optimism of their citizens.  Australia was ranked about the middle (14th).  Respondents in the United States and Britain were more optimistic (ranked 4th and 9th respectively) while those in France and Japan were less optimistic (ranked 28th and 29^th respectively). 

That information is from a review I wrote of a book entitled Measuring Progress, edited by Richard Eckersley. Unfortunately, I have not been able to find the survey report or data table, but the article in The Economist indicates that only a quarter of Japanese expected their children to be better off than they were. That figure lies between the recent I.M. and Pew estimates.

An indication of the way optimism about the next generation changes over time with changes in economic conditions is provided in a review of U.S.data by Journalist’s Resource. Pessimism about the standard of living of future generations fell during the 1990s and has since risen again to levels comparable to those in the early 1990s.

There is not a great deal of comfort in knowing that Australians are not as pessimistic about the prospects for future generations as are people in most other high income countries. The situation could easily get worse with a deterioration in economic prospects in Australia.

It is quite possible that people are mistaken in their pessimism about prospects for future generations, but perceptions can have an important influence on well-being and can also influence attitudes and behaviour. We should know more about why people are pessimistic and whether their perceptions are well founded. Recent reports by the Grattan Institute and the Foundation for Young Australians are relevant to this question and should probably be discussed on this blog in the near future.

Postscript 1:

I have just found my copy of the report of the 1998 Angus Reid Poll referred to above. It was filed away in a place where it was not difficult to find. I am amazed that on this occasion my filing system worked better than Google.

The survey was conducted in May/June 1998. The relevant question was: “all things considered, do you think your children will be better off or worse off than you?”. Apparently 57% of Australians thought that prospects for the next generation would improve, 22% thought they would get worse and 21% thought they would stay the same or were unsure. The corresponding numbers for the U.S. were 78%, 14% and 9%. At the optimistic end of the scale, corresponding numbers for China were 85%, 4% and 11%. Towards the pessimistic end, the corresponding numbers for France were 33%, 52% and 15%; and for Japan, 24%, 59% and 17%.

Postscript 2:
I have just come across some LSAY (Longitudinal Survey of Australian Youth) data which suggests that young people in Australia are optimistic, despite their dissatisfaction with "the state of the economy' and "the way the country is run". In 2013 when their average age was 25.7, 90.1% of the Y03 cohort were happy with their career prospects, 96.3% were happy with their future, 59.9% were happy with the state of the economy and 53.6% were happy with the way the country is run. This group had remained consistently optimistic over the period from 2004 to 2013.

Postscript 3:

My attention has also been drawn to the annual survey of Australian youth conducted by Mission Australia. This captures views of young people on a range of issues, including their aspirations and views on how likely their aspirations are to be achieved. In 2014, there were 13,600 survey respondents aged 15-19 years. Respondents volunteer to take part in the survey in response to an invitation and an electronic link provided via schools.

Aspirations which respondents viewed as highly important (extremely important or very important) included: career success (87.4%); financially independence (86.1%) and home ownership (72.6%). Corresponding percentages viewing aspirations as highly likely to be achievable (extremely likely or very likely) were as follows: career success (55.9%); financial independence (65.5%) and home ownership (71.0%). I am not sure what counts as career success, but those numbers suggest to me that young Australians tend to be pessimistic about their chances of achieving financial independence and optimistic about their chances of home ownership.

Respondents were also asked how positive they felt about the future. In 2014, 63.8% of respondents felt positive or very positive about the future. The corresponding percentages for 2013 and 2012 were 67.5% and 70.6%. 

Does it make sense to think of trade-offs between life satisfaction and wealth?

Before you answer the question, I would like you to conduct a couple of thought experiments.

The first step is to answer the following question:

All things considered, how satisfied are you with your life these days? Please give your answer as a number between 1 and 10, with a rating of 1 is you are dissatisfied and 10 if you are satisfied.

That is a standard question that has been asked by happiness researchers. Now we come to the thought experiments.

Thought experiment 1:

Imagine that your circumstances suddenly change so that it becomes possible for you to increase your peronal life satisfaction rating by 25% if you are prepared to sacrifice some wealth. What is the maximum amount of wealth that you would be prepared to sacrifice in order to achieve an improvement of 25% in your life satisfaction rating?

Don’t worry if the 25% improvement would take you beyond the top of the rating scale. For the purpose of this exercise it is deemed to be possible to increase your life satisfaction beyond the end of the scale e.g. from 10 to 12.5. That makes sense because people who are completely satisfied with their lives sometimes find that their lives get even better.

Thought experiment 2:

Now imagine a different scenario. Your circumstances change so that it becomes possible for you to increase you wealth by 25% if you are prepared to sacrifice some personal life satisfaction. How much life satisfaction would you be prepared to sacrifice in order to achieve a 25% increase in wealth?

My guess is that in answering the first question there are not many people who would be prepared to sacrifice all their wealth to obtain a 25% increase in life satisfaction. In relation to the second question I don’t think there would be many people who would be unwilling to sacrifice any life satisfaction (if only for a limited period) in order to obtain a 25% increase in wealth. Those are just my guesses. If large numbers of people tell me that I am wrong, I will have to admit that I have made a mistake.

What is the point of this exercise?  Some economists have been prepared to assume that the sole aim of individuals is to maximize life satisfaction as measured in social surveys. That might seem to be a reasonable assumption until you think of the implications. If your sole aim is to maximize personal life satisfaction it would be irrational not to sacrifice all your wealth in order to obtain greater life satisfaction, if that possibility became available. Similarly, it would be irrational to sacrifice any life satisfaction under any circumstances to obtain greater wealth.

If the choices that people make imply that they do not aim to maximize life satisfaction, that doesn’t mean that they are irrational. It just means that there are some things more important to them than life satisfaction, including some things that money can buy.

What could be more important to people than life satisfaction? Some clues are offered by research, discussed here a couple ofmonths ago, which asks people to choose between hypothetical situations with different ratings of life satisfaction and other well-being indicators. 

The people surveyed indicated a stronger preference for options offering high overall well-being to you and your family than for life satisfaction. Other well-being indicators ranked above life satisfaction included personal health, being a good, moral person and living according to personal values, the quality of family relationships, financial security, your mental health and emotional stability, a sense of security about life and the future, having many options and possibilities in life and freedom to choose among them and a sense that your life is meaningful and has value.

Are Fijians really happier about their lives than Australians?

This might be an appropriate question to consider on Australia Day.

My attention was aroused when I saw the headline “Global happiness survey shows Fijians are the world’s most content”, because I hadn’t previously seen any happiness data for Fiji. The headline refers to a survey of 65 countries recently conducted by WIN/Gallup. (The Gallup organisation involved is not the one that conducts the Gallup World Poll.)

When I looked further I found that the survey also has happiness data for Papua New Guinea, which shows that people in that country also tend to be relatively happy. By contrast, Australians appear to be relatively unhappy.

The question asked in the survey was: “In general, do you personally feel very happy, happy, neither happy nor unhappy, unhappy or very unhappy about your life?” I have constructed the average happiness ratings in the accompanying Figure by assigning a score of 5 to “very happy”, 4 to “happy”, 3 to “neither happy of unhappy”, 2 to “unhappy” and 1 to “very unhappy”.

I am not sure what to make of the rankings shown in the Figure because they seem to be difficult to square with the findings of other happiness surveys. This may be because the survey question is interpreted differently in different parts of the world.

A central issue, it seems to me, is whether the question is more likely to evoke emotional responses or responses that involve some cognitive input. John Hall and John Helliwell, who have expertise in happiness research, leave no doubt that they believe survey participants respond differently when asked how happy they are than when asked how happy they are with their lives:

“As has been shown in the first and second World Happiness Reports, respondents to surveys recognize the difference between happiness as an emotion and happiness as a judgment about the quality of life as a whole. The responses of individuals to these different questions are highly distinct. A very poor person might report himself to be happy emotionally at a specific time, while also reporting a much lower sense of happiness with life as a whole; and indeed, as we show later, people living in extreme poverty, whether in terms of income or social support, do report low levels of happiness with life as a whole”.

The WIN/Gallup survey appears to be asking people how happy they are with their lives, but it doesn’t seem to be interpreted that way. I used regression analysis in an attempt to explain the findings in terms of Gallup World Poll data on “life evaluation” (relative to the best and worst possible life) and “happiness yesterday”. The analysis was conducted for 60 countries for which some matching data was available. The analysis was not very successful in explaining the WIN/Gallup data: it suggested a positive relationship with the happiness variable and no relationship with the life evaluation variable.

Further analysis suggests that the WIN/Gallup question elicits a particularly positive response in African, South Asian, CIS and Latin American countries.

On Australia Day it might be worth thinking for a moment about the kind of response you are likely to get from an Australian if you ask: “In general, do you personally feel very happy, happy, neither happy nor unhappy, unhappy or very unhappy about your life?”. I expect it would be common to get a response something like: “I’m happy enough about my life, I suppose”. The surveyor interprets that to mean that the respondent is “happy”, whereas the respondent might actually feel very happy about his or her life, but reluctant to appear exuberant unless intoxicated.

Does education make people happier?

There is conflicting evidence on the impact of education on happiness. Some studies show that higher educational qualifications have a positive impact on life satisfaction, while others show a negative impact.

One reason for the conflicting findings is the indirect nature of some of the positive contributions that education makes to life satisfaction. For example, education may contribute to life satisfaction by enabling people to earn higher incomes. Such indirect contributions are disregarded when researchers attempt to estimate the impact of education on life satisfaction by using single equation regression analysis to disentangle the impact of education from other factors such as income.

Some recent research by Nattavudh Powdthavee, Warn Lekfuangfu and Mark Wooden has applied a structural equation model to Australian data to estimate both the direct and indirect effects of education. The authors found that the positive indirect impacts of education on life satisfaction outweigh its negative direct impact (i.e. holding other things equal). The strongest positive indirect effect is via income, followed by long-term health.

These findings may provide some comfort to the providers of educational services. They can claim that education tends to enable people to have happier lives because it makes them to become wealthier and remain healthier.

However, the findings also suggest that young people seeking life satisfaction might achieve that goal to a greater extent if they can remain healthy and find a path to wealth that  does not involve a great deal of education.

Providers of education services might do better to argue that it is better to have a meaningful life rather than to have high levels of emotional well-being. Roy Baumeister has reported some research findings which suggest that although there is fairly high correlation between being happy and feeling that your life is meaningful, there are some important differences. For example, happiness is about the here and now, whereas meaningfulness seems to be more about assembling past, present and future into some kind of coherent story. It would be nice to think that education would help people to do that, but I have not seen that proposition tested against evidence.

Cartoon by Nicholson, originally published in "The Australian".

Providers of educational services may also be able to argue that the education experience itself is not the cause of unhappiness of educated people. A study by Michael Dockery, previously discussed on this blog, indicates that young people in Australia who experience higher education switch from having relatively high to relatively low levels of happiness (compared to others of the same age) at about the time they complete their degrees. There are several possible explanations for this, but the one I now favour is that young people compare themselves to a different reference group when they make the transition from higher education to work. When at university they are likely to compare their lifestyles to those of other members the undergraduate community, but after they gain employment they are more likely to compare their lifestyles with those of successful workmates.

If higher education tends to encourage people to compare their own achievements in life with those of other educated people, who tend to be high achievers, is that a bad thing? I don’t think so.  

Do people value the happiness of their families above their own personal happiness?

One way to answer this kind of question is to ask people to choose between hypothetical situations with different ratings of family well-being and variables such as life satisfaction, ratings of life relative to best and worst possible, appreciation of life and absence of negative emotion. That is the approach taken in an exploratory study by Daniel Benjamin, Ori Heffetz, Miles Kimball and Nichole Szembrot entitled, “Beyond Happiness and Satisfaction: Toward well-being indices based on stated preferences.

The people surveyed tended to indicate a stronger preference for options offering high “overall well-being to you and your family” than for any options regarding the 135 other aspects of well-being covered in the survey. The findings were based on an internet survey of 4,600 Americans.

The results help to explain why previous studies have shown that many people are prepared to sacrifice life satisfaction in order to obtain higher incomes.

Some of the other findings of the study are interesting:

• Life satisfaction is ranked more highly than positive emotion (e.g. “how happy you feel”).
• The absence of negative emotion, such as anger, stress, pain and worry tends to rank around the middle of aspects of well-being covered.
• Eudaimonic dimensions of well-being, such as being a moral person and living according to personal values tend to rank highly.
• Other aspects of personal well-being to be given a high ranking include health, the quality of family relationships, mental health and emotional stability, financial security and “having many options and possibilities in your life and the freedom to choose among them”.
• Men tended to give higher ranking to “your sense that your life is meaningful and has value”, whereas women tend to rank more highly “your mental health and emotional stability”.
• As regards policy options, greatest importance was attached to “freedom from corruption, injustice and abuse of power in your nation”, “the morality, ethics and goodness of other people in your nation” and “freedom of speech and people’s ability to take part in the political process and community life”.

The authors are at pains to point out the exploratory nature of their study and the many problems yet to be resolved in developing well-being indexes based on stated preferences. That might explain why some results that seem anomalous. For example, it is difficult to understand why “your rating on a ladder where the lowest rung is ‘worst possible life for you’ and the highest rung is ‘best possible life for you” is ranked far below “how satisfied you are with your life”( 103 versus 13). Previous research suggests that survey respondents view high ratings on those well-being indicators as close substitutes. Again, the ranking of “your material standard of living” (98) is much lower than the ranking of “your financial security” (6) and “your feeling that you have enough time and money for the things that are most important to you” (12).

My final comment on the study is that I was left wondering whether it might be possible to use a simpler approach to obtain useful indicators of well-being based on stated preferences. What I have in mind is to use each respondent’s current income and ratings of various other aspects of well-being as the initial basis for comparison and then asking them to choose between options involving various combinations of changes in income and other aspects of well-being. That might enable researchers to compare the marginal utility of different aspects of well-being in dollar terms and to map how preferences for different aspects of well-being tend to differ for people at different income levels.

Why am I interested in happiness research?

“THOMAS GRADGRIND, sir. A man of realities. A man of facts and calculations. A man who proceeds upon the principle that two and two are four, and nothing over, and who is not to be talked into allowing for anything over. Thomas Gradgrind, sir - peremptorily Thomas - Thomas Gradgrind. With a rule and a pair of scales, and the multiplication table always in his pocket, sir, ready to weigh and measure any parcel of human nature, and tell you exactly what it comes to. It is a mere question of figures, a case of simple arithmetic. You might hope to get some other nonsensical belief into the head of George Gradgrind, or Augustus Gradgrind, or John Gradgrind, or Joseph Gradgrind (all supposititious, non-existent persons), but into the head of Thomas Gradgrind - no, sir!

In such terms Mr. Gradgrind always mentally introduced himself, whether to his private circle of acquaintance, or to the public in general.” Charles Dickens, Hard Times, Chapter2.

I'm not like that. However, an interest in happiness research may seem to many people to imply an obsession with measuring, calculating and attempting to understand things that are not meant to be understood. 

Perhaps trying to understand what makes people happy is a bit like trying to understand why jokes are funny. It isn’t obvious that an understanding of what makes jokes funny would be much help to anyone in telling jokes, or how an understanding of what makes people happy would help anyone to become happier.

It is fairly easy to explain how I came to be interested in happiness research, so I will begin by writing about that. In my work as an economist I spent more than a few decades considering what government policies were likely to advance the well-being of the people in the countries where I have lived and worked (mainly Australia and New Zealand. It seemed fairly obvious that the vast majority of Australians and New Zealanders wanted higher incomes, so it was reasonable to assume that would improve their well-being. If someone questioned whether higher incomes would make people any happier, my defence was that economists should be in the business of making it possible for people to have happier lives rather than advising them how to spend their money.

At the same time, I could not help becoming interested in the puzzle of why happiness surveys showed little or no increase in average happiness ratings in high income countries over several decades while average income levels rose substantially. This is of course Easterlin’s puzzle - named after the economist Richard Easterlin.

I stopped being puzzled once I understood that happiness surveys measure emotional well-being - a component of well-being rather than the whole package. There is no reason to expect the value that people place on physical health, education, housing and safety, among other things, to be fully reflected in measures of emotional well-being. 

Emotional well-being is strongly related to self-esteem, optimism and the feeling of being in control of one’s life – none of which would be expected to be strongly influenced by further increases in incomes in high-income countries.

It is true, of course, that when people see higher incomes as the pathway to emotional bliss they are unlikely to be satisfied with one pot of gold - even if they find the end of a rainbow. But most people seem to make sensible choices. They might seek a higher income if that is necessary to pursue objectives that they consider to be worthwhile. For many people, higher incomes are incidental to career objectives. There is no reason to expect people to stop trying to achieve more in life just because they are satisfied with their current standard of living.

It seems to me that if we are interested in measuring well-being, then the survey measures of happiness are just one of the items we should look at. I favour the approach taken by the OECD in its Better Life Index.

However, an indicator approach doesn’t give economists a value-free measure of well-being. It leaves open the question of what weights should be given to the various component indexes. The OECD leaves the value judgement in the hands of the users of its index. That is more appropriate than having researchers assign weights, but it would be good to see how weights might need to differ to reflects the different values of people in different parts of the world. In my view the Better Life Index should be accompanied by illustrative weights derived from a values survey.

So, one of the reasons why I am interested in happiness research is apparent from what I have written. Happiness research is relevant to measurement of human well-being and that is relevant to economic policy.

I am particularly interested in the relationship between freedom and flourishing. Do government restrictions on individual freedom – in the wars against drug taking, smoking, alcohol, obesity, overwork etc. - actually have the desired effect of enabling people to have happier lives? I don’t think so. The policies adopted by governments seem designed to make people less happy in an attempt to get them to adopt healthier lifestyles, but I don’t know where to find the evidence to prove it.

In any case, that is only part of the story. My interest in happiness research is not always closely related to government policy. Some of my recent posts have taken me into the relationship between life satisfaction and the incidence of negative emotional experience. I am not sure why I am interested in such matters. Nevertheless, it seems more satisfying than spending my time trying to understand what makes jokes funny.

Is the incidence of depression higher where people are experiencing more negative emotion and suffering?

It would be difficult to be interested in human flourishing without having some interest in understanding the differences in incidence of “suffering”, negative emotion, and depression in different parts of the world.

I have written a few posts about negative emotion recently, but it is now a few years since I looked explicitly for a relationship between “suffering” and depression at an international level. The last time I looked, I couldn’t see any relationship. I concluded that “the data … suggest there is no simple relationship”.

There is now some new data available, so I have taken another look. But I don’t want you to get too excited, because you might end up feeling disappointed.

A data set on depressive disorders in 2010 has been compiled by Alize Ferrari and others as part of the Global Burden of Disease Study. The researchers collected data on the depressive disorders from published articles and pooled the data using a statistical technique (Bayesian meta-regression). The data used below relates to major depressive disorder (MDD) which is also known as clinical depression. It involves at least one major depressive episode in which the affected individual experiences a depressed mood almost all day, every day for at least 2 weeks.

The negative emotion data is sourced from the Gallup World Poll. Respondents were asked if they experienced worry, anger, sadness or depression yesterday. The data used is based on country averages of yes/no answers (yes = 1).

The data on suffering is from the new Gallup-Healthways Global Well-being index. The index covers 5 dimensions of well-being: purpose (liking what you do and learning or doing something interesting); social (having supportive relationships); financial (having enough money to do what you want and not being worried about money); community (liking where you live and having pride in your community) and physical (feeling active and productive, and in good health). People are classed as suffering in a particular element if their well-being in that element is low and inconsistent.

For the purpose of this exercise I have estimated the percentage suffering in each country as the average of the percentages suffering in each dimension.

After the three data sets were combined I had data for 114 countries. At the country level, there is a modest degree of correlation between the three variables:

Struggling and MDD:                          0.24

Struggling and negative emotion:        0.20

Negative emotion and MDD:              0.06 .

The graph presented below provides a basis to compare averages for the relevant variables in 10 regions of the world.

All three indicators tell an unambiguous story of misery in the Middle East and North Africa. Suffering seems somewhat higher in Sub-Saharan Africa, but the incidence of negative emotion is apparently lower in that part of the world than in the Middle East and North Africa.

Central and Eastern Europe seems to have a fairly high incidence of all three indicators of misery. The incidence of depression and suffering is similarly high in the former Soviet countries, but the incidence of negative emotion is similarly lower.

East Asia stands out as having a relatively low incidence of negative emotion and depression, but a higher incidence of suffering than Latin America. According to the Gallup-Healthways data, the incidence of suffering in Latin America is not much greater than in Europe.

It is possible to speculate on reasons why the three indicators tell different stories in several regions of the world. Cultural factors probably explain the relatively low incidence of negative emotion in East Asia and Sub-Saharan Africa. Cultural factors might also explain why the incidence of suffering has been assessed to be relatively low in Latin America. (As discussed in an earlier post, cultural factors might also explain why the Gallup-Healthways index shows a high percentage of the population in Latin America to be thriving). There may also be potential for the estimates of depression to be biased by such factors as differences in availability of trained mental health professionals.

That leaves me concluding that caution is required in comparing suffering, negative emotion and depression in different parts of the world. I know that is a fairly lame conclusion, but I did warn you not to get too excited.

Do international comparisons show that people in countries with low average life satisfaction tend to have a high incidence of negative emotion?

It seems intuitively reasonable that people in countries with low average life satisfaction levels would tend to have a higher incidence of negative emotion. The theory of subjective well-being homeostasis, discussed in my last post, provides a theoretical basis to predict that will happen. Adaptation and resilience normally keep life satisfaction within a set-point range, but if resilience is weak, life satisfaction can fail to recover from negative experiences. On that basis we would expect low average life satisfaction to be associated with a relatively high incidence of homeostatic breakdown.

At first sight, Figure 1 appears to provide very limited support for the homeostasis theory. There are no countries in which high average life satisfaction is accompanied by a high incidence of negative emotion. At the other end of the scale, however, there are many countries in which low average life satisfaction is accompanied by a relatively low incidence of negative emotion.

The data is sourced from the Gallup World Poll (via World Happiness Report 2013). The negative emotion data for each country is the average of yes/no answers (yes = 1) to the question of whether respondents experienced worry, anger, sadness, anger and depression yesterday. The life satisfaction data is based on the Cantril ladder which involves survey respondents being asked to rate their lives against an 11 point scale in which the top rung of the ladder (rating of 10) corresponds to the best possible life and the bottom rung of the ladder (rating of 0) corresponds to the worst possible life.

Figure 2 shows the expected relationship after controlling for a range of socio-economic and cultural factors. This involved adjusting the data on incidence of negative emotion using the results of a regression analysis. The adjusted data are estimates of what the incidence of negative emotion might have been in the absence of variation in the socio-economic and cultural factors (i.e. with the socio-economic variables equal to the average over all countries and European/American culture).

The regression analysis suggests that at a national level an increase of 1 unit in average life satisfaction reduces the incidence of negative emotion by about 0.02 (SE = 0.007) i.e. by about 10% at the world average level of negative affect. The regression explained about 45% of international variation in the incidence of negative emotion.

The socio-economic variables included in the regression were per capita GDP, social support (relatives and friends to count on), freedom (proportion satisfied with freedom to choose what they do) and corruption (proportion saying corruption is widespread in business or government). The estimated coefficients for those variables were all significantly different from zero, with a negative estimated coefficient on income. It isn’t surprising that high average incomes could be associated with a high incidence of negative emotion if not accompanied by high average life satisfaction and social support.

The cultural influence has been accounted for by using regional dummy variables. The estimates suggest that cultural factors reduce the reported incidence of negative emotion by the following amounts:

East Asia:                                 0.134 (SE 0.025)

Africa:                                      0.104 (SE 0.017)

South Asia:                              0.103 (SE 0.027)

Former Soviet Union:              0.092 (SE 0.020)

Central and Eastern Europe:    0.055 (SE 0.018)

South East Asia:                       0.050 (SE 0.022)

The low incidence of reported negative emotion in East Asia is consistent with previous research on cross-cultural difference in subjective wellbeing. (See, for example a recent article by Lufanna Lai, Robert Cummins and Anna Lau – abstract here.)

One of the most interesting findings of the regression analysis reported above is that the coefficient for Latin America was not significantly different from zero. This is in contrast to the findings of studies relating to positive emotion (including those reported on this blog here and here) which suggests that Latin American culture has a strong positive impact. It seems that the positivity of Latin Americans does not translate to a lower incidence of negative emotion in that part of the world.