1. Happiness in Europe Cross-country differences in the determinants of subjective Well-Being EPUNet Conference 2006 Peder J. Pedersen University of Aarhus & Torben Dall Schmidt University of Southern Denmark Work in progress!

2. Happiness in Europe Content 1.The issue, results and data – does absolute or relative income change matter for the happiness of Europeans? 2.Cross-country differences in the happiness with the main activity in the ECHP – does it vary? 3.Levels: Income effects on the level of well-being? household equivalent income subjective evaluation of income gains does change in individual income relative to average income change in society matter? 4.Changes: Does change in income relative to average change in society matter for change in well-being? 5.Summary – a North-South divide and others?

3. Happiness in Europe The issue Individual utility interpreted as the interaction between preferences and a budget restriction –Income should be of importance for the outcome in happiness! Previous studies mostly fail to find any narrow relationship between happiness and income –e.g. Bjørnskov, Datta Gupta and Pedersen (2005) where acceleration in income matters but not income level or change in income (based on Eurobarometer – cross-sections/macro) Are we able to find a clear relationship when using obser- vations on individual behaviour from the ECHP – and what are the cross-country differences?

4. Happiness in Europe The results Level of well-being (probability of being happy) –Absolute income level positive for well- being –Health and change in health matters for well-being –Mostly positive impact from being 60+ years on well-being –Transition from job to unemployment negative for well-being –Women less happy in Southern European countries –Cohabitation positive for well-being –Subjective evaluation of income gain positive for well-being –North-South divide: Change in income relative to average change in society important for level of well-being in Southern Europe Change in well-being (probability of increasing/decreasing well- being) –Improved health positive for increase in well-being – insignificant for decrease in well- being –Transition from employment to unemployment leads to a clear decline in well-being –Transition from unemployment to employment positive for increase in well-being –Exit from labour force positive for increase in well-being –Change in income relative to average in society no significant impact on change in well-being!

5. Happiness in Europe The data Initially focus on four countries representing European welfare state types: –Denmark (Nordic or Social democratic model) –France (Continental model) –Ireland (Liberal model) –Italy (Southern model) –Next focus on a wider set of EU countries Sample: ECHP 1998-2000 for persons of age 18 years or more The dependent variable – dichotomous variable based on pk001 “Satisfaction with work or main activity” – or the change in this symmetric around 0 (base 0) –pk001: contains six response categories ranging from 1: Not satisfied to 6: Fully satisfied –satspliteq: takes value 0 if pk001={1,2,3} and value 1 if pk001={4,5,6} The covariates Measures of equivalent income and income changerelative to average (hi100/hd004) Self-evaluation of income change (hf015) Age (pd003) Gender/female (pd004) Cohabitational status (pd008) Children aged less than 12 years (hl001) Main activity (pe001) Education (pt022) Health (ph001) Crime (ha022) Pollution (ha021) and changes in some of these variables

6. Happiness in Europe Happiness with the main activity in the ECHP Cross-country variation in average happiness levels – is the variation to be explained? (wave 7 – 2000) Differences are outspoken with a decreasing average in the sequence Denmark- Ireland-France-Italy

7. Happiness in Europe Happiness with the main activity in the ECHP Does the equal split in the subjective well-being in pk001 lead to a bias? – Case Denmark Value 6 decreasing while others increasing – intra-group dynamics but share of values 4, 5 and 6 constant over time – only decreases by 0,2 percentage points The distribution of response categories in pk001 does seem stable over the eight waves for Denmark

8. Happiness in Europe Levels Denmark – probit for dichotomous variable Being rich, old and cohabiting with a subjective evaluation of income gains increases the probability of being happy Bad health leads to a higher probability of not being happy Denmark – probit for dichotomous variable - equal split of pk001 - phase 1a, 1b and 1c

9. Happiness in Europe Levels France – probit for dichotomous variable Being rich, old, cohabiting and having a subjective evaluation of income gains increases the probability of being happy Being in the labour force, bad health, crime and pollution in the neighbourhood leads to a higher probability of not being happy Denmark – probit for dichotomous variable - equal split of pk001 - phase 1a, 1b and 1c

10. Happiness in Europe Levels Ireland – probit for dichotomous variable Being rich, old and cohabiting with a subjective evaluation of income gains increases the probability of being happy Bad health leads to a higher probability of not being happy Denmark – probit for dichotomous variable - equal split of pk001 - phase 1a, 1b and 1c

11. Happiness in Europe Levels Italy – probit for dichotomous variable Being rich, in the labour force, highly educated,cohabiting,children under 12 in the household and having a subjective evaluation of income gains increases the probability of being happy Bad health, female and crime leads to a higher probability of not being happy Denmark – probit for dichotomous variable - equal split of pk001 - phase 1a, 1b and 1c

12. Happiness in Europe Changes in well-being – including more countries The North-South divide in Europe –Increase in relative income only increases probability of well-being in Southern Europe –Marginal effect is decreasing (chg2meaneqiinc) Better health increases probability of well- being and improving well-being Employed to unemployed reduced probability of well-being and probability of decreasing well-being Unemployed to employed increases probability of improving well-being Becoming inactive increases probability of improving well-being Being old increases probability of well- being Education increases probability well-being Denmark – probit for dichotomous variable - equal split of pk001 - phase 1a, 1b and 1c

13. Happiness in Europe? Summary Summary Income levels matters for happiness in Europe North-South divide – changes in income relative to average change in society matters in Southern Europe Labour market transitions lead to expected changes in happiness Older groups of population tends to be more happy, which may be correlated with propensity to withdraw from labour market – increases happiness Gender matters for southern European countries