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Redefining Social Progress: Measuring Wellbeing beyond GDP and Economic Indicators
Abstract
The Gross Domestic Product (GDP) has long reigned as the primary measure of a nation's progress. However, its limitations in capturing the true well-being of its citizens are becoming increasingly evident. This article argues for a paradigm shift in how we measure social progress, moving beyond GDP and embracing a more holistic approach that considers multiple dimensions of human flourishing.
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Until recently, it was widely held that happiness fluctuates around set points, so that neither individuals nor societies can lastingly increase their happiness. Even though recent research showed that some individuals move enduringly above or below their set points, this does not refute the idea that the happiness levels of entire societies remain fixed. Our article, however, challenges this idea: Data from representative national surveys carried out from 1981 to 2007 show that happiness rose in 45 of the 52 countries for which substantial time-series data were available. Regression analyses suggest that that the extent to which a society allows free choice has a major impact on happiness. Since 1981, economic development, democratization, and increasing social tolerance have increased the extent to which people perceive that they have free choice, which in turn has led to higher levels of happiness around the world, as the human development model suggests.
© 2008 Association for Psychological Science.
This paper reviews advances in the study of satisfaction in the context of Social Indicators Research. Five developments are considered: (1) changes in the conceptualization of satisfaction, (2) advances in the measurement of satisfaction, (3) growth of a significant body of comparative data on satisfaction, (4) the map of satisfaction that emerges from these developments, (5) resulting advances in understanding of the appraisal-process, and (6) developments in the use of the satisfaction concept in wider conceptions of welfare.
In this new edition of his landmark book, Richard Layard shows that there is a paradox at the heart of our lives. Most people want more income. Yet as societies become richer, they do not become happier. This is not just anecdotally true, it is the story told by countless pieces of scientific research. We now have sophisticated ways of measuring how happy people are, and all the evidence shows that on average people have grown no happier in the last fifty years, even as average incomes have more than doubled. In fact, the First World has more depression, more alcoholism and more crime than fifty years ago. This paradox is true of Britain, the United States, continental Europe, and Japan. What is going on? Now fully revised and updated to include developments since first publication, Layard answers his critics in what is still the key book in 'happiness studies'.
The Easterlin Paradox refers to the fact that happiness data are typically stationary in spite of considerable increases in income. This amounts to a rejection of the hypothesis that current income is the only argument in the utility function. We find that the happiness responses of around 350,000 people living in the OECD between 1975 and 1997 are positively correlated with the level of income, the welfare state and (weakly) with life expectancy; they are negatively correlated with the average number of hours worked, environmental degradation (measured by SOx emissions), crime, openness to trade, inflation and unemployment; all controlling for country and year dummies. These effects separate across groups in a pattern that appears broadly plausible (e.g., the rich suffer environmental degradation more than the poor). Based on actual changes from 1975 to 1997, small contributions to happiness can be attributed to the increase in income in our sample. Interestingly, the actual changes in several of the ‘omitted variables’ such as life expectancy, hours worked, inflation and unemployment also contribute to happiness over this time period since life expectancy has risen and the others have, on average, fallen. Consequently the unexplained trend in happiness is even bigger than would be predicted if income was the only argument in the utility function. In other words, introducing omitted variables worsens the income-without-happiness paradox.
Over the past few years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.