There are clearly a number of issues remaining to be resolved in this area.30 But a reasonable interim conclusion is as follows: 1. In a typical country, economic growth improves happiness, other things equal. But other things are not necessarily equal, so economic growth does not automatically go with increased happiness. Thus policy-makers should balance the argument for more rapid growth against the arguments for supporting other sources of happiness. This applies to countries at every level of development. 2. In developed countries in particular there is strong micro-level evidence of the importance of income comparisons, which has not been disproved by aggregate data. For this reason policies to raise average happiness must target much else besides economic growth. Country-level income and happiness: cyclical fluctuations There is of course a sharp distinction between long-term economic growth, which may have little effect on the level of unemployment, and short-term growth, which is the only way to reduce the high unemployment currently prevailing in most parts of the world. Everybody agrees on the importance of short-run growth in such a context. Happiness fluctuates over the business cycle. It is generally somewhat higher when employment is high relative to trend and when unemployment is therefore low.31 But on the other hand happiness is also lower when inflation is high, as often happens in upturns. In the overall balance, happiness rises in booms because a one-point decrease in unemployment has at least twice as large an effect on happiness as a one-point increase in the inflation rate. Economic stability is a crucial goal for any society, due largely to the fact of loss aversion, whereby individuals hate to lose x dollars more than they love to gain x dollars.32 But economic stability is a quite different goal from long-term economic growth. Long-term growth has much less impact on human happiness than do human relationships in all their dimensions – as we shall see.
Work A key relationship comes through work. It provides not only a livelihood but a source of meaning – feeling needed and able to contribute. But not everyone can get work, nor if they can, is it always satisfying. Unemployment When people become unemployed they experience sharp falls in well-being and their well-being remains at this lower level until they are re-employed.33 The estimated effect is typically as large as the effect of bereavement or separation, and the unemployed share with these other experiences the characteristic of ceasing to be needed. 66
The Appendix to this chapter documents that unemployment reduces well-being in all the datasets analyzed. It also shows that the main impact of unemployment on well-being is not through the loss of income, but rather through loss of social status, self-esteem, workplace social life, and other factors that matter. Psychologists34 have examined these non-pecuniary benefits of work, and they include the preset time structure of the working day, regularly shared experiences and contacts with people outside the family, links to goals and