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Subjective wellbeing

In the last decade there has also been considerable interest in measuring the happiness, or subjective wellbeing, of individuals. Typical subjective wellbeing questions ask people to consider how satisfied they are as a whole with their life, or to rank their level of happiness on a numerical scale.[6] An alternative method asks people to report their feelings in real time, which yields a measure of 'experienced effect' or happiness (Kahneman et al., 2006).

Researchers are increasingly using these self-assessed measures to provide insights into living standards within and across societies (Veenhoven, 2007; Layard, 2005; OECD, 2006). Such measures can be useful at two levels: (i) to measure the overall wellbeing within or between societies; and (ii) to inform and test more specific policy hypotheses.

A large proportion of individual differences in life satisfaction can be attributed to genetic and personality factors - some people are hard-wired to be happy.[7] That notwithstanding, income and a range of situational variables also affect life satisfaction. Layard (2005) proposes the following 'big five' factors that impact on happiness in order of importance: family relationships, financial situation, work, community and friends, and health.

When comparing happiness across nations, broad societal factors become important. These include freedom (economic, political and personal), the rule of law, tolerance, security and equality (Veenhoven, 2000, 2006). Importantly, subjective measures of wellbeing are, in some circumstances, found to be a better predictor of life outcomes than objective measures. For example, Singh-Manoux et al. (2005) found that subjective socio-economic status is a better predictor of health status in middle-aged adults than objective measures of socio-economic status.

Income displays an interesting, paradoxical, relationship to happiness. At a given point in time, individuals and nations with higher incomes report higher happiness. Yet for most countries happiness has increased little if at all over the last few decades while real incomes have risen dramatically (the Easterlin paradox). As is well documented in the literature, there are diminishing returns to life satisfaction with higher incomes. For example, while there has been a two to five fold increase in incomes for the United States and Japan, the average self-reported happiness has stayed constant (Easterlin, 1995). Common explanations for this divergence are the powerful effects of adaptation and social comparisons, a tendency for happiness to vary around a set point, and the omission of factors which have offset the beneficial effect of economic growth (Layard, 2005).

The latest data does, however, give some indication of increasing happiness over time, but large increases in national income over time are correlated with only very small changes in subjective wellbeing.[8] Within wealthy nations, the differences in happiness between people are explained more by social relationships than by income. The happiness literature thus calls for a reprioritisation of goals away from GDP towards work-life balance, income redistribution, treatment of mental health and encouraging a sense of community (Layard, 2005).


  • [6]Subjective measures are generally considered meaningful and reasonably comparable among groups of individuals, though biases can occur (Veenhoven, 2007). The responses are highly correlated with physiological and medical measures of happiness, such as how often a person smiles (Layard, 2005).
  • [7]The classic evidence for the influence of genes come from studies of twins that were raised together and apart where the correlation of subjective wellbeing was almost 50 percent for identical twins versus less than 10 percent for non-identical twins (Tellegen et. al., 1988).
  • [8]The results of the latest World Values Survey indicates that happiness rose in 45 of the 52 countries for which substantial time-series data were available (Inglehart et al., 2008). Stevenson and Wolfers (2008) also find some income-happiness relationship over time, although to increase happiness beyond a certain point required an increasingly large amount of income (i.e., the relationship was not linear).
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