What is economic happiness?
The economics of happiness is the formal academic study of the relationship between individual satisfaction and economic issues such as employment and wealth. The economics of happiness attempts to use econometric analysis to discover which factors increase and decrease human well-being and quality of life.
Key points to remember
- The economics of happiness is the formal academic study of the relationship between individual satisfaction and economic issues such as employment and wealth.
- The main tools used include surveys and indices to track what different economies offer their residents.
- Collecting happiness data can serve a number of purposes, including helping governments design better public policies.
- However, happiness is a subjective measure and, therefore, can be difficult to classify.
How the happiness economy works
The economics of happiness is a relatively new branch of research. It aims to identify the economic determinants of well-being, primarily by asking people to complete surveys. Previously, economists did not bother to compile such research, preferring to define what motivates happiness at a distance based on their own understanding.
Indeed, determining the well-being and preferences of individuals is not an easy task. Happiness can be difficult to classify because it is a subjective measure.
Regardless of these challenges, those studying the economics of happiness continue to argue that it is essential to examine factors affecting quality of life, beyond the typical areas of economic studies such as income and wealth.
They set out to achieve their goal by sending out surveys that directly ask people to rate their level of happiness. They also analyze the quality of life monitoring indices in different countries, focusing on factors such as access to health care, life expectancy, literacy levels, political freedom, product gross domestic (GDP) per capita, cost of living, social support and pollution levels.
Collecting happiness data can serve a number of purposes, including helping governments design better public policies.
Example of happiness economy
Over the past 30 years, a number of economic parameters of happiness have emerged. The most common include Gross Inner Happiness (GDH) and Happiness Indices which aim to track the well-being of people living in multiple countries of the world.
According to the 2020 Happiness Index, the happiest places are:
- New Zealand
Europe, which is home to many countries at the top of the 2020 list, is particularly committed to the economy of happiness. The Organization for Economic Co-operation and Development (OECD) in the region collects data on the economy of happiness and ranks its 35 member countries based on factors such as housing, income, employment, education, environment, civic engagement and health.
Research on the economics of happiness has generally found that people in wealthy countries with quality institutions tend to be happier than people in less wealthy countries with poorer institutions. Research compiled by pollster Gallup since 2005 has found that doubling GDP per person increases life satisfaction by about 0.7 percentage points. However, several other studies have dug holes in the neoclassical economics hypothesis that higher income is always correlated with higher levels of utility and economic well-being.
For low-income people, many economists have discovered that more money generally increases happiness because it allows a person to buy goods and services considered essential to life such as food, housing, care health and education. But there seems to be a threshold somewhere in the region of $ 75,000 after which no additional amounts are reported to increase life satisfaction.
Other factors that affect happiness include the quality and type of work that people do, as well as the number of hours worked. Several studies show that job satisfaction is more important than income levels. Boring repetitive jobs can bring little joy, while self-employment or work in skilled creative jobs can lead to greater satisfaction.
Working more can also increase happiness, especially if it’s a job someone likes, but even then there is a limit, as working long hours regularly results in higher and less stress of happiness. Studies also indicate that leisure time can be just as important as the quality of work in terms of human well-being and happiness. Other factors that reduce happiness include unemployment, poor health, debt for high-interest consumers, and commuting more than about 20 minutes.