The 1776 US Declaration of Independence takes it as self-evident that the
‘pursuit of happiness’ is an ‘unalienable right’ alongside life and liberty. The
goal of happiness – as the ideal end-state of economic and social develop-
ment is the third approach considered in this chapter. Happiness could
provide a direct measure of human well-being. This may seem unlikely but
recent research has shown an interesting and complex relation between
economic growth and happiness. Oswald (1997:1818) used the General
Social Surveys of the US (which since 1972 have been questioning people
about their levels of happiness) and found that happiness between 1972 and
1990 was stable or increasing slightly. Old people systematically reported
higher levels of happiness, and controlling for this demographic effect
Oswald found a very slight but positive upward trend over time overall and
that men tended to become happier while women experienced little change.
For Europe the Euro-barometer Survey Series asks ‘on the whole are you
very satisfied, not very satisfied or not at all satisfied with the life you lead?’
Answers are available for random samples from 1973 onwards for 12
European countries. Levels of life satisfaction show a slight increase since
the early 1970s,though with large differences across nations. In Denmark
more than half the population say they are ‘very satisfied’ while in Italy the
figure is around ten per cent. Some of this difference is likely to reflect
cultural and linguistic differences. There will be difficulties in translation
because for words like happiness, contentment and satisfaction there are
subtle differences between English and other languages.
The consistent finding from both the US and European data is that happi-
ness has not increased in line with rising incomes. There are two explanations
for this apparent paradox. The first is that individuals compare themselves with
other individuals rather than to their own past levels of income so that it is not
the absolute level of income that matters most but rather one’s position relative
to other individuals. Second, additional income and consumption initially
provides only transitory happiness which soon wears off. This process is called
adaptation and implies that wants are insatiable – the more one gets, the more
one wants (Frey and Slutzer, 2002). There is supporting evidence showing that
lottery winners do not experience long-term gains in happiness (Kahneman
and Krueger, 2006).
The implications of happiness research for policy are striking. Much
economic policy over recent decades has emphasized the importance of
increasing labour market flexibility by reducing controls on hiring and firing to
allow rapid adjustment to changing market conditions or technology and
permit labour to be quickly re-allocated to sectors in which it can be used most
productively. A robust finding from happiness research is that happiness is
very negatively impacted by job insecurity or unemployment. In the early
1990s mental distress was twice as high among the unemployed as among
those who had work (Kahneman and Krueger, 2006). This implies that what
might be good for growth is not necessarily good for happiness.
38 Sources of Growth in the Modern World Economy since 1950