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Subjective wellbeing

Treasury's Framework is supplemented by insights from the subjective wellbeing literature. Subjective measures of wellbeing bring an additional layer to understanding living standards as they allow Treasury to assess how well someone is living from that individual's own perspective or experience. There is a growing consensus that both subjective and objective indicators are needed to measure living standards (Stiglitz et al., 2009; OECD, 2010b).

Subjective measures of wellbeing have been used in the Framework primarily as a useful cross-check to ensure that the objective measures are the right ones. For example, the subjective wellbeing literature has reinforced the intuitive understanding that factors such as good health and employment are very important to people's lives. It has also given additional prominence to the importance of social connectedness, such as having strong relationships with family, friends and the community (Layard, 2005). Further, one of the reasons the distribution of living standards is important is that it affects how people feel about their lives. Finally, the subjective wellbeing literature reinforces the concept of diminishing marginal utility of income (Easterlin, 1995; Inglehart et al., 2008; Stevenson & Wolfers, 2008).

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