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Developing Countries
Well-Being
(1) What is well-being?
Aristotle sees ‘happiness’ and ‘living –well’ as the same thing and that
living well consists of doing something.
Well-being and satisfaction are similar concepts hence can directly test utility.
Satisfaction=Utility
B
Well-Being
However Easterlin (1974) found that over time happiness did not increase with income –
Easterlin paradox
If increasing income does not increase satisfaction or utility then why be obsessed with
Time
this?
Well-Being
Richard Layard and others (e.g. Frey and Stutzer, 2002), argue
that it is relative income that explains why happiness does not
increase significantly beyond
Genetic.
Set Point
SWB
Positive Shock – e.g.
inheritance, lottery win,
house prices
0
Years
Well-Being
Cross-Country Comparisons
Many studies compare countries (e.g. Stevenson and Wolfers, 2008) and
suggest that GDP per capita is significant in subjective happiness.
Other factors that are important include health and unemployment rates.
Does someone who scores 8 in Sweden really have the same level of
happiness as someone who scores 8 in India? – reference group.
Well-Being
(3) Estimating well-being equations.
Using the Likert scale for happiness or life satisfaction as the dependent
variable.
In national study use income per adult equivalence for household level
income, use the squared term too to see if happiness increases with income
at a decreasing rate.
Same method for information on assets and wealth – may need to create an
index or use factor analysis to get a single measure of household
assets/wealth e.g. pots and pans, knives, agricultural tools.
Well-Being
Endogeneity Issues
Well known in the labour economics literature that the unemployed are scarred –
we would expect that the unemployed would, ceteris paribus, report lower levels of
satisfaction than the employed.
As well as this basic test the applied literature has used the satisfaction data to test
whether the searching and non-searching unemployed report different satisfaction
rates.
This tests the neo-classical hypothesis that via maximising utility the non-searching
unemployed are voluntarily unemployed as they choose not to search.
Studies on job satisfaction have found that relative earnings are important –
findings tend to confirm that as the average earnings of someone with your
skill set increases then, ceteris paribus, job satisfaction declines.
Well-Being
Other Hypotheses of interest-
First issue is that of endogeneity – are the unhappiest people more likely to be
unemployed?
(i) Find that larger consumption raises life satisfaction. In developing countries there is
still a great need to increase economic growth to raise income levels.
(ii) If relatively better off in terms of consumption then more satisfied. The importance of
relative position is confirmed.
(iii) The perceptions of your neighbours’ wealth positively predicts more satisfaction for
you. Capturing some of the log consumption variable as this coefficient decreases in size.
(vi) The salaried employed and self-employed are more satisfied than farmers.
Model 1 Model 2 Model 3 Model 4 Model 5
ln(Per Capita Consumption) 0.338*** 0.173*** 0.184*** 0.138*** 0.072**
(13.905) (6.115) (7.044) (4.811) (2.322)
ln(Mean Community Consumption) -0.193***
(-5.267)
Relative Household Consumption 1 0.152*** 0.174*** 0.164***
(4.910) (5.586) (5.212)
Relative Household Consumption 2 0.061***
(5.671)
Neighbours' Subjective Wealth 0.108*** 0.101***
(8.627) (7.996)
Asset Score 0.096***
(5.564)
Salaried Employment Dummy 0.144*** 0.136*** 0.135*** 0.124*** 0.091***
(4.442) (4.234) (4.199) (3.848) (2.737)
Self-Employed Dummy 0.151*** 0.145*** 0.146*** 0.137*** 0.130***
(4.417) (4.244) (4.266) (4.002) (3.797)
N 11264 11264 11264 11248 11205
Pseudo R-Squared 0.068 0.068 0.068 0.070 0.071
Chi2 1802.312 1793.891 1812.681 1850.342 1869.723
Some Useful Websites for Economics of Wellbeing, Quality of Life and
Happiness
Stevenson, B, and Wolfers, J., (2008), “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox”, NBER
Working Paper Series, No. 14282
Layard. R., (2005), Happiness: Lessons from a new science, Penguin, London.
Frey, B., and Stutzer, A., (2002), Happiness and Economics: How the Economy and Institutions Affect Human Well-Being, Princeton
University Press, NJ.
Lucas, R., Clark, A., Georgellis, Y., and Diener, E., (2004), “Unemployment Alters the Set Point for Life Satisfaction”, Psychological
Science, 15(1): 8-13.
Powdthavee, N. (2005). Unhappiness and crime: Evidence from South Africa. Economica, 72, 531–547.),
Hinks, T., & Gruen, C. (2007). What is the structure of South African happiness equations?: Evidence from quality of life surveys.
Social Indicators Research, 82(2), 311–336.
Hinks, T., &Davies, S. (2008). Life satisfaction in Malawi. Journal of International Development, 20, 888–904.
Davies, S., and Hinks, T., (2010), “Crime and Happiness amongst heads of households in Malawi”, Journal of Happiness Studies, 11:
457-476.
Copestake, J., Guillen-Royo, M., Chou, W. J., Hinks, T., Velazco, J., (2009). The relationship between economic and subjective
wellbeing indicators in Peru. Applied Research in Quality of Life, 4 (2), pp. 155-177.
Kingdon, G., and Knight, J., (2006), “The measurement of unemployment when unemployment is high”, Labour Economics 13(3):
291-315.