S.Carret & J.CuiDevelopment Workshop1 ECONOMIC GROWTH AND SUBJECTIVE WELL-BEING: REASSESSING THE EASTERLIN PARADOX Stephanie Carret & Jinjie Cui (Eric) Faculty of Economic Science University of Warsaw 13th October, 2009

S.Carret & J.CuiDevelopment Workshop2 The Planning for today 1. Review of the paper: main ideas 2. Analysis of illustrative graphs 3. Other views on the subject «Income-Well being link» 4. What questions can we raise? « In the end, economics is not about wealth, it’s about the pursuing of happiness » Krugman, 1998

S.Carret & J.CuiDevelopment Workshop3 Review of the paper: main ideas (1) Betsey Stevenson and Justin Wolfers examine the Easterlin Paradox with a critical view, analyzing the data available since the 1940’s Richard Easterlin is University Professor and Professor of Economics at the University of Southern California is in particular known for his 1974 article "Does Economic Growth Improve the Human Lot? Some Empirical Evidence" and The Easterlin Paradox: this theory assets there’s no link between the level of income and the level of well-being once basic needs are fulfilledUniversity of Southern California The importance of distinguish the analysis within and in between countries The problematic of the link between a country’s economical growth and the well being of its inhabitants The transformation of subjective data in analytical data

S.Carret & J.CuiDevelopment Workshop4 Review of the paper: main ideas (2) When the income reaches a certain level for example $15,000 GDP per capita, additional income does not raise or very little, the level of well-being: satiation point Within a given country, there’s a huge difference in subjective well-being between the richest and the poorest areas: Example: China GDP’s per capita per region HK: $30,755 (//Ireland); SH: $10,537 (//Hungary); Tibet: $1997 (//Mongolia) The paper’s final conclusion: « absolute levels of income in shaping happiness » are more » have a more important role than the relative income comparison » (p.29)

S.Carret & J.CuiDevelopment Workshop5 Review of the paper: main ideas (3): Maslow’s Hierarchy of NEEDS

S.Carret & J.CuiDevelopment Workshop6 Analysis of illustrative graphs (1) Figure 4: Life satisfaction and the real GDP per capita: Gallup World Poll 132 countries, people aged 15+ Subjective well-being questions, with a « ladder » Correlation is high and links level of GDP with level of well-being The graph follows the hierarchy of the countries’ wealth Figure 6: Subjective well-being and real GDP per capita in selected surveys Comparison surveys between the hapiness and life satisfaction notions 3 different sources of surveys: analysis of the questions asked and period of time

S.Carret & J.CuiDevelopment Workshop7 Analysis of illustrative graphs (2) Graph 11: Within countries and between countries estimates of the life satisfaction income Gradient: Gallup World Poll Combines both data for within and in between countries Again here the representation follows the hierarchy of the countries’ development Graph 16: Change in life satisfaction and economic growth in Europe: Eurobarometer survey Cases of Belgium Cases of Danemark/Italy/France Cases of West Germany/Netherlands Case of Ireland Graph 18: Life satisfaction and GDP per capita over time in Japan Life satisfaction follows the growth evolution See Graph 20: Hapiness and Income over time in USA (counter example)

S.Carret & J.CuiDevelopment Workshop8 Other views on the «Income- Well being» link (1) Important Scholars in the debate of the « Income-Well being » link: Richard Easterlin, Robert Frank, Andrew Oswald (economics), Daniel Kahneman, Ed Diner, Tom Tyler (psychology), Ruut Veenhoven (sociology), Robert Lane (Political science) Relative or Absolute: The relationship between income and subjective well-being: Relative or absolute? by Ed Diener, Ed Sandvik, Larry Seidlitz and Marissa Diener. Paper refers to Easterlin and Veenhoven, Revue Social Indicators Research, Ed. Springer, March 1993, Individuals’ answers during well-being measures depends on many factors: Developments in the Measurement of Subjective Well-Being by Daniel Kahneman, Alan B. Krueger, Journal of Economic Perspective, Winter 2006

S.Carret & J.CuiDevelopment Workshop9 Other views on the «Income- Well being» link (2) Does our social comparative attitude affects our perception of self satisfaction: Neighbors as Negatives: Relative Earnings and Well-Being, by Erzo and Lutmer, Quaterly Journal of Economics, August 2005 The developed countries’ problematic, why does USA have the same level of subjective well-being since the 1950’s, although there has beem a huge general increase of income?: Does Relative Income Matter?Are the Critics Right?, by Richard Layard, Guy Mayraz and Stephen Nickell, Center for Economic Performance Discussion Paper, LSE, March 2009

S.Carret & J.CuiDevelopment Workshop10 What questions can we raise Debate What causes the link between the level of income and that of hapiness? Is the relation absolute or relative: Does income relate to subjective well-being because it ensures universal human needs or because people make evaluative judgments of themselves compared to others? Can this field of economics been considered as rationnal as other fields? Is there a universality of emotions? Does the increase of material prosperity provoke the increase of subjective well-being? The approach of the need fulfillment to explain the link « income/well-being » (Maslow’s pyramid of needs) Link to inequality, Kuznets Curve: check NL/USA (check GDP)

S.Carret & J.CuiDevelopment Workshop11 Source: Paper: Stevenson, Betsey and Wolfers, Justin. “ECONOMIC GROWTH AND SUBJECTIVE WELL-BEING: REASSESSING THE EASTERLIN PARADOX.” Philadelphia: University of Pennsylvania, 2008; NBER Working paper series Internet: Google Scholar BOOK: Kolter & Armstrong. “Principles of Marketing”, Chapter 5, 2003.

S.Carret & J.CuiDevelopment Workshop12 Questions??? Thank you for your attention!!!