nep-hap New Economics Papers
on Economics of Happiness
Issue of 2021‒08‒30
five papers chosen by
Viviana Di Giovinazzo
Università degli Studi di Milano-Bicocca

  1. How threatening are transformations of happiness scales to subjective wellbeing research? By Kaiser, Caspar; Vendrik, C.M.
  2. Why Does Happiness Respond Differently to an Increase vs. Decrease in Income? By Easterlin, Richard A.
  3. Wealth, Assets and Life Satisfaction: A Metadata Instrumental-Variable Approach By Zuzana Brokesova; Andrej Cupak; Anthony Lepinteur; Marian Rizov
  4. The Economics of Walking About and Predicting Unemployment By David G. Blanchflower; Alex Bryson
  5. The Welfare Effects of Time Reallocation: Evidence from Daylight Saving Time By Joan Costa-Font; Sarah Fleche; Ricardo Pagan

  1. By: Kaiser, Caspar; Vendrik, C.M.
    Abstract: Two recent papers argue that many results based on ordinal reports of happiness can be reversed with suitable monotonic increasing transformations of the associated happiness scale (Bond and Lang 2019; Schröder and Yitzhaki 2017). If true, empirical research utilizing such reports is in trouble. Against this background, we make four main contributions. First, we show that reversals are fundamentally made possible by explanatory variables having heterogenous effects across the distribution of happiness. We derive a simple test of whether reversals are possible by relabelling the scores of reported happiness and deduce bounds for ratios of coefficients under any labelling scheme. Second, we argue that in cases where reversals by relabelling happiness scores are impossible, reversals using an alternative method of Bond and Lang, which is based on ordered probit regressions, are highly speculative. Third, we make apparent that in order to achieve reversals, the analyst must assume that respondents use the response scale in a strongly non-linear fashion. However, drawing from the economic and psychological literature, we present arguments and evidence which suggest that respondents likely use response scales in an approximately linear manner. Fourth, using German SOEP data, we provide additional empirical evidence on whether reversals of effects of standard demographic variables are both possible and plausible. It turns out that reversals by either relabelling or by using Bond & Lang's approach are impossible or implausible for almost all variables of interest. Although our analysis uses happiness as a special case, our theoretical considerations are applicable to any type of subjective ordinal report.
    Keywords: ordinal reports, transformations of cardinal scales, happiness, subjective wellbeing, life satisfaction, Easterlin Paradox, General Social Survey, German Socio-Economic Panel
    JEL: I31 C25
    Date: 2020–09
  2. By: Easterlin, Richard A. (University of Southern California)
    Abstract: The answer is that people's evaluations of their income situation are based on different considerations when the economy is expanding and when it is contracting. When, in the course of economic growth, incomes generally are rising, evaluations tend to be dominated by "social comparison"—what is happening to the incomes of others. An increase in the incomes of others undercuts the tendency for happiness to grow with an increase in one's own income, and happiness remains fairly constant. But in a recession, as people increasingly have difficulty meeting their fixed financial obligations, the benchmark for income evaluations turns inward. "Financial hardship", the shortfall from one's own previous peak income, takes over, and the greater the shortfall, the less one's happiness. There is thus an asymmetry in the psychological roots of income evaluations when income is rising vs. falling , and this causes a corresponding asymmetry in the response of happiness to the direction of income change.
    Keywords: happiness, life satisfaction, subjective well-being, economic growth, GDP, income, easterlin paradox, recession, social comparison, financial hardship
    JEL: I31 D60 O10
    Date: 2021–08
  3. By: Zuzana Brokesova (University of Economics in Bratislava); Andrej Cupak (National Bank of Slovakia); Anthony Lepinteur (University of Luxembourg); Marian Rizov (University of Lincoln)
    Abstract: We analyse the relationship between wealth/assets and life satisfaction. Using the Household Finance and Consumption Survey microdata from Slovakia in 2017, we first show that real assets (being the major component of household wealth) and life satisfaction are positively correlated. We address endogeneity concerns thanks to the metadata of the survey: we use the interviewers ’ratings of the respondents’ quality of dwellings to instrument the value of real assets. We show that the 2SLS estimate is positive and higher than the baseline OLS estimate, confirming that real assets are measured with error in survey data. Finally, we use the paradata to show that living next to a neighbour with better house quality significantly decreases one’s happiness. Our results suggest that around half of the total effect of real assets on life satisfaction is relative.
    JEL: I30 D60 G51 C26
    Date: 2021–07
  4. By: David G. Blanchflower (Bruce V. Rauner ’78 Professor of Economics, Dartmouth College, Hanover, NH 03755-3514. Adam Smith School of Business, University of Glasgow and NBER); Alex Bryson (Professor of Quantitative Social Science, UCL Social Research Institute, University College London, 20 Bedford Way, London WC1H 0AL)
    Abstract: Unemployment is notoriously difficult to predict. In previous studies, once country fixed effects are added to panel estimates, few variables predict changes in unemployment rates. Using panel data for 29 European countries - Austria; Belgium; Bulgaria; Croatia; Cyprus; Czechia; Denmark; Estonia; Finland; France; Germany; Greece; Hungary; Ireland; Italy; Latvia; Lithuania; Luxembourg; Malta; Netherlands; Poland; Portugal; Romania; Slovakia; Slovenia; Spain; Sweden; Turkey and the UK - over 439 months between January 1985 and July 2021 in an unbalanced country*month panel of just over 10000 observations, we predict changes in the unemployment rate 12 months in advance based on individuals’ fears of unemployment, their perceptions of the economic situation and their own household financial situation. Fear of unemployment predicts subsequent changes in unemployment 12 months later in the presence of country fixed effects and lagged unemployment. Individuals’ perceptions of the economic situation in the country and their own household finances also predict unemployment 12 months later. Business sentiment (industry fear of unemployment) is also predictive of unemployment 12 months later. The findings underscore the importance of the “economics of walking about”. The implication is that these social survey data are informative in predicting economic downturns and should be used more extensively in forecasting. We also generate a 29 country-level annual panel on life satisfaction from 1985-2020 from the World Database of Happiness and show that the consumer level fear of unemployment variable lowers wellbeing over and above the negative impact of the unemployment rate itself. Qualitative survey metrics were able to predict the Great Recession and the economic slowdown in Europe just prior to the COVID pandemic.
    Keywords: unemployment, fear, sentiment, social attitudes, life satisfaction, recession, COVID
    JEL: J60 J64 J68
    Date: 2021–08–01
  5. By: Joan Costa-Font (CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics); Sarah Fleche (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, CEP - LSE - Centre for Economic Performance - LSE - London School of Economics and Political Science); Ricardo Pagan (Universidad de Málaga [Málaga] = University of Málaga [Málaga])
    Abstract: Daylight Saving Time (DST) is currently implemented by more than seventy countries, yet we do not have a clear knowledge of how it affects individuals' welfare. Using a regression discontinuity design combined with a differences-in-differences approach, we find that the Spring DST causes a significant decline in life satisfaction. By inducing a reallocation of time, the transition into DST deteriorates sleep and increases time stress, which in turn affects physical and emotional health. After performing a simple cost-benefit analysis, we find evidence suggestive that ending DST would exert a positive effect on welfare, namely the wellbeing costs associated with DST exceed its benefits.
    Keywords: Daylight Saving Time,wellbeing,health,sleep,time stress
    Date: 2021–08–19

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