Economists have long recognized that the quantity of goods that consumers can buy is only one part of the measurement of the standard of living. Factors such as the social and cultural environment and political freedom contribute to the standard of living.However,there is an implicit assumption that GDP remains one of the most important components of economic welfare.
Economists using psychological surveys, though, presents a more complex picture. Using surveys from across the world (cross sectional surveys), they have found happiness and income are positively related at low levels of income but higher levels of income are not associated with increases in happiness. The idea that increases in GDP do not lead to increases in happiness is called Easterlin Paradox, after Richard Easterlin, an economist, who identified this problem in 1974 research paper.Using Southeast Asia survey data suggests that life satisfaction in the Southeast Asia has actually declined since 2000 despite a more than 70 percent rise in GDP. All the survey evidence for the USA and Japan also concluded that there has been no increase in happiness in those countries over the last 12 years.
The conclusion from research is that an increase in consumption of material goods will improve well-being when basic needs are not being met, such as adequate food and shelter. But once these needs are being met, then increasing the quantity of goods consumed makes no difference to well-being. Having a new LCD television, or a new car doesn't increase your well-being in the long run.
There is a number of factors which have been identified which contribute to happiness from survey evidence.
- Relationships- Friends and family have a very important role to play in happiness. In 2010 research paper, the economist Nattavudh Powdthavee gave estimates of the monetary value of different types of relationships.Meeting friends and relatives just once or twice a month had a monetary value of $31000 per year per capita. This should be compared with average real annual household income per capita of $9800. Talking to neighbors most days was worth $40800. Being married was worth $68400. On the other hand , being divorced lead to a negative monetary value of $21600 per year. It is possible to dispute the exact size of the figures. However, the casual observer can see that individual placed a high value on relationships. Friendship are prized. Partners in marriage give up well paid jobs for the sake of their marriage. Most divorced people seek to remarry.The high point of consumerism in today's world , Christmas , is one where people give gifts to each other and spend time together as families. Being alone, cut off from friends, family and even casual day to day encounters, is associated with low esteem, depression and mental illness.
- Work- work provides income and satisfaction .However, research also shows that aspects of work depress happiness. Long commuting journeys, tight work deadlines, lack of control over how a job is done and housework have all shown up in surveys as being negative correlated to happiness and well being. Overall, the survey evidence suggests that workers in high income countries would be happier if they had lower incomes but more leisure time. As for unemployment, in the same survey was calculated to have a negative happiness value of $66400 per year.
- Health- Having good health has a very high monetary value in terms of happiness. The valuation put on excellent health is $303000 per year. Surveys suggest that health and happiness are correlated. Countries with above average incidence in high blood pressure are those with the lowest happiness scores. Good psychological health leads to happiness.Mental ill health has a large negative impacts on happiness. There is some evidence that mental health problems in rich countries have been increasing over time, possibly due to the increasing fragmentation of society and increased stress in the workplace.
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