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Economics of Happiness

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Submitted By anavic14
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Abstract
This paper explores the direct relationship between income and happiness. The first section of the paper discusses the issue of economics and migration and what this means for people’s happiness. The second section has to do with the correlation between age, money and happiness. It researches to see if your age has any effect on your happiness when it comes to your income level. The paper also talks about the main relationship between income and happiness and how having any kind of inequality can greatly affect your happiness in life. It looks into a certain situation where they look at the relationship between a family’s income and their happiness as a whole. The last section of the paper is one quite interesting because it looks into the concept of being self-employed and what effect, if any, it has on your happiness. One would think that it would cause a positive effect because you are your own boss, but the article goes into more depth with the direct and indirect ways it affects you and also on a national and individual level of self-employment.

The Economics of Happiness
There are two different sections for when it comes to the concept of economics and migration. The first part has to do with people migrating to another country looking for better opportunities and furthermore, in income. When they migrate from a less developed country to a more developed country, they have a belief that since it is a better economy, they will have more wealth. This belief leads them to make that first step into migrating into another country because they will be much happier. The second part of this concept is that people that are already in those developed countries do not seem to be as happy as those that have recently migrated. The Easterlin paradox is the first theory that has to do with the concepts of income and happiness. What this person concluded was that people who were living in wealthy countries turned out to be happier than those who were living in poor countries, but that at the same time this relationship was not that strong. He also concluded that there was hardly any relationship between happiness and income growth over time.
The example Easterlin uses is when Japan experienced an economic boom that began in the 1950s but did not have any effect on the average happiness in the country. One would think that since they were experiencing a huge increase in their economic output that their happiness would tremendously increase. This, though, was not the case whatsoever. There have been times where the Easterlin paradox has been translated as saying that money is not needed in order to be happy. This is not what Easterlin is attempting to explain, though. It is just explaining the “notion that economic growth does not increase average levels of happiness in part as a result of changes in income. Within countries, wealthier people are on average happier than poorer people” (Bartram, 2011).
The factor that affects an immigrant’s happiness has to do with the expectations they had of what they would experience once they migrated, and the reality that actually happened. The discrepancies between these two factors directly affect the happiness levels of an immigrant. Happiness here is calculated by the “personality/temperament, and to the extent that migration was motivated by a sense of frustrated ambitions one might find that that feeling persists after migration despite economic gains” (Bartram, 2011). This is due to the fact that when somebody moves from one country to another, they are making some kind of sacrifice in their life because they want to have better opportunities and more income. The kind of sacrifice they may be making is that they are leaving family behind for better opportunities.
In the article “Economic Migration and Happiness”, the study they did showed that “a higher income raises the odds for higher levels of life satisfaction to a greater extent for immigrants than it does for natives. A second finding…is the fact that being an immigrant in the US is associated with significantly lower odds of higher levels of life satisfaction relative to natives” (Bartram, 2011). What this article concluded was that if you are an immigrant in another country, you experience a lower life satisfaction, but that at the same time, the effect of income on your life satisfaction is higher than for natives.
Most people do not think that there is some kind of correlation between age, money, and happiness. The article “Money and happiness: does age make a difference?” shows that there is a positive income effect on younger adults when compared to older adults. Older adults seem to have no effect when it came to their income and the correlation with their happiness. In the article, they conducted a study that used data from United States General Social Survey from 1972 to 2006 that concluded the effects on younger adults and older adults.
Another article, “The U-Shaped Curve of Happiness” refers to happiness as being u-shaped and concluding that the young and the older are the ones that are happy, leaving the middle-aged people to be mediocre when it came to their happiness. This study was done in 21 European countries and showed how your satisfaction and happiness with life progressed in the shape of a U. The curve starts out at the very top right around when adulthood begins at the age of 16 and starts declining slowly between the ages of 30-39. It finally ends up hitting the very bottom at the age of 40 and it is not until the age of 50 that it slowly starts rising up once again. The reason for such a strange pattern in happiness has to do with other factors such as economic and social pressures that have to do with one growing up and facing the real world. Some of these issues have to do with work and the frustrations or expectations with the pay you receive and the job fulfillment one has with the specific job he or she may have.
The reason why young adults and older adults are more content compared to middle-aged people, is due to the importance that a job has to them at that certain age. When you are in your early 20s you are barely starting out and have high aspirations for your future, therefore as your years progress and you have not met those aspirations, the decline in your happiness begins. Usually people in their late 50s and 60s are no longer in the labor market, therefore making the importance of a job less.
The next section of this paper has to do with the relationship between income inequality and happiness. The article “Income Inequality and Happiness” talks about the research they did by conducting a General Social Survey data that was conducted from 1972 to 2008. In their finding they found that on average, Americans were happier between the years where the national income inequality was less, compared to other years where the national income inequality was higher. The reasoning behind this though, is not because people are making less money than the rich, but because during the years where there was more national income inequality, there was more unfairness perceived and the trust was not very high.
One of the tools to measure income inequality that is commonly used is the Gini coefficient. “In the 1960s and 1970s, the Gini coefficient in the United States was much lower than in France and was on par with many other European nations…by 2008, the Gini coefficient was much higher for the United States than for most European nations and for Canada” (Oishi, Kesebir, & Diener, 2011). The survey they conducted first asked how they perceived their surroundings by having them choose from a three point scale, being not too happy, pretty happy, or very happy. This was the only question that actually measured their well-being. The other questions in the survey measured the levels of fairness and general trust with questions asking about people taking advantage of them and if people could be trusted. At the end of the survey, they were asked to list their household income.
The results that the survey found were that people found others to be less trustworthy and fair when they were in times where the income inequality was greater. Since Americans did not trust people or feel fairness was being done during the years where the income inequality was greater, there were lower levels of happiness being reported due to this feeling of uncertainty. The study also checked to see if there was any correlation between income inequality, happiness, and different income levels. What they found was that the lower-income group reported lower levels of happiness, compared to the higher-income group. This was also during times of higher income inequality. One would think that it would be due to the amount of income they have, but instead it was because during these times of high income inequality, they felt like they could not trust anybody, people were out to get them, and things were not running fairly. What this article concluded was that we are happier when the income inequality is much less therefore society should “consider policies that produce more income equality, fairness, and general trust (Oishi et al., 2011).
The relationship between family income and happiness in Poland seems to be directly related to economic development during a time of modernization in the country. Happiness in this situation is seen through three different elements: how you are satisfied with your life, satisfaction with your income, and your overall well-being. Between the years of 1989 and 2008 in Poland, the per capita income was growing at a faster rate than the GDP was. This created the question that if income satisfaction also grew with all these different measures of income. What they found out was that people in Poland were not quite content with their income and in 1994 the proportion of the people that were actually content with it was less than one tenth, but it actually increased in 2008 up to more than one fourth. Even though one would say that this was a very great increase, “the people dissatisfied with income still outnumber those satisfied and thos expressing ambivalent feelings. Satisfaction with life in general was much higher than income satisfaction and also grew quite rapidly, from 54.1%, in 1994, to 70.5%, in 2008” (Zagórski, 2011).
These different studies have shown that the rate of people who are satisfied with their family income is growing at a much faster pace than what the actual GDP and per capita income are growing. On the other hand though, the rate at which people are satisfied with their life in general, is growing at a slower pace than the satisfaction with family income.
Having your own company and being self-employed may also have an effect on your happiness whether it is through an indirect or direct way. The direct way has to do with the direct relationship that having your own business has on your happiness. The indirect way has to do with “the impact of self-employment on per capita income which in turn influences happiness in nations” (Harbi & Grolleau, 2012). People who are self-employed have shown to have a higher level of happiness with their job because they are satisfied with what they are doing and therefore have a higher sense of satisfaction with their life. The way this works is that a person is allowed to achieve their dreams they have for themselves, rather than having to work for what they want in life or aspire to be. Another good point that is stated in the article is that if you surround yourself with happy people, you will in return be a happier person. It all has to do with the kind of people that you surround yourself.
In conclusion, the economics of happiness has many different sections. The migration of one person into a more developed country can affect the happiness of a person because of the opportunities they are now offered. There is also a distinct correlation between age, income and happiness and is described as being in a U-shaped curve. Income inequality in a certain country also affects the happiness of the country as a whole. When there is a higher income inequality, the happiness and moral of a country is lower because there is less trust and fairness perceived. Finally, being self-employed also has an effect on one’s happiness both direct and indirect. The economics of happiness can be studied in many different perspectives and not just in material things that one has.

References

Bartram, D. (2011). Economic Migration and Happiness: Comparing Immigrants' and Natives' Happiness Gains From Income. Social Indicators Research, 103(1), 57-76. doi:10.1007/s11205-010-9696-2
Becchetti, L., Corrado, L., & Rossetti, F. (2011). The Heterogeneous Effects of Income Changes on Happiness. Social Indicators Research, 104(3), 387-406. doi:10.1007/s11205-010-9750-0
HSIEH, C. (2011). Money and happiness: does age make a difference?. Ageing & Society, 31(8), 1289-1306. doi:10.1017/S0144686X10001431
Oishi, S., Kesebir, S., & Diener, E. (2011). Income Inequality and Happiness. Psychological Science (Sage Publications Inc.), 22(9), 1095-1100. doi:10.1177/0956797611417262
Zagórski, K. (2011). Income and Happiness in Time of Post-Communist Modernization. Social Indicators Research, 104(2), 331-349. doi:10.1007/s11205-010-9749-6
Harbi, S., & Grolleau, G. (2012). Does self-employment contribute to national happiness?. Journal Of Socio-Economics, 41(5), 670-676. doi:10.1016/j.socec.2012.06.001
Tucker, P. (2008). The U-Shaped Curve of Happiness. Futurist, 42(4), 11.

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