Economists have long left the study of happiness to other discipline such as psychology and sociology. However with the renewed interest around the world in knowing whether economic growth around the world has been an associated with increase in happiness level for individuals economic thinking on the subject has changed dramatically. There are various reasons for an economist to be interested in happiness. One obvious reason is in the formulation of 'Economic policy'. In the empirical measurement of happiness, experts establish an econometric relationship between the happiness measure and the determinants of happiness through the Happiness functions. For example the variables for US General Social Survey (Niall Flynn) are:

H happiness (very happy = 3, pretty happy = 2, not too happy = 1)
Y log of real household income per adult (2 adults = 1.6; 3 adults = 2.1)
Y log of average household income per adult in the same year and household type
R perceived relative income (well above average = 5, above average = 4, average = 3, below average = 2, well below average = 1)2

∆Y >0 dummy (compared with no change)
∆Y <0 dummy (compared with no change)

X age, age2, sex, marital and employment status

Happiness functions have been estimated with aggregate as well as with individual data. Recently, panel data have increasingly been used.

Trends in Happiness around the World

Western Europe

For Europe, the Euro-barometer Surveys, collects the data by asking the life-satisfaction question i.e. “On the whole, are you very satisfied, fairly satisfied, not very satisfied, or not at all satisfied with the life you lead?”
And the happiness question, “Taking all things together how would you say things are these days – would you say you’re very happy, fairly happy, or not too happy these days?” since 1975. They then treated each variable as a continuous variable scored 1-4 or 1-3 respectively and regress them on time.

The average findings for the two time period,
(i) 1975 to 1986 on Happiness and Life satisfaction and
(ii) 1975 to 2000 on life satisfaction for Britain, N Ireland, Ireland, Belgium, Denmark, France

Italy Nederland and Germany indicate that:
(a) Happiness rose before 1986.
(b) Before 1986 happiness rose more than life-satisfaction.
(c) Since 1986 life-satisfaction rose more than it rose before 1986.

So on a whole Happiness in Europe probably rose since 1986 than before 1986, and rose over the whole period since 1975

US

The happiness data derived from the US General Social Surveys reveals that even though real income in several countries has dramatically risen since World War II, the self-reported subjective well-being of the population has not increased, or has even fallen slightly. In the US, for example, between 1946 and 1991, per capita real income rose by a factor of 2.5 (from approximately $11,000 to $27,000), but over the same period happiness remained, on average, constant. And from 1972 to 1998 there was a slight fall in happiness in US.

The US General Social Survey (Niall Flynn, Centre for Economic performance LSE) shows that societal income and own lagged income are important as a determinant of happiness. It also confirms that the Perceived relative income is more important than actual income as a determinant of happiness and that a fall in income hurts about twice as much as an equal rise in income.

Eastern Europe and the Third world

For Eastern Europe and Developing world The World Value Survey, collects data by asking the two questions,
(a) “Taking all things together would you say you are very happy, quite happy, not very happy, and not at all happy?”
(b) “All things considered how satisfied are you with your life as a whole these days?” 1 2 3 4 5 6 7 8 9 10
As shown in the table below they give scores for average happiness (1-4) and for average life satisfaction (1-10) for all years for which data are available.

Trends in Eastern Europe and the developing world
	Average Happiness				Average Satisfaction
Country	1981	1990	1995-97	1997-00	1981	1990	1995-97	1997-00
Hungary	2.86	2.72		2.84	6.93	6.03		5.8
Poland		2.97	3.02	2.85		6.64	6.42	6.2
Czech Republic	2.76		2.95		6.37		7.06
Slovakia			2.51	2.74			6.15	6.03
Croatia			2.75	2.94			6.18	6.68
Macedonia			2.74	2.89			5.7	5.12
Bulgaria		2.33	2.58	2.44		5.03	4.66	5.5
Romania		2.63		2.39		5.88		5.23
Albania				2.59				5.17
Slovenia		2.62	2.85	2.91		6.29	6.46	7.23
Serbia			2.8	2.83			5.56	5.62
Montenegro			2.83	2.76			6.21	5.64
Bosnia			2.87	3.02			5.46	5.77
East Germany		2.96	2.91			6.72	6.64
Estonia		2.58	2.64	2.71		6	5	5.93
Latvia		2.52	2.73	2.61		5.7	4.9	5.27
Lithuania		2.53	2.56	2.79		6.01	4.99	5.2
Tambov ( Russia)	2.71		2.41		7.13		4.23
Russia		2.54	2.5	2.43		5.37	4.45	4.65
Ukraine			2.45	2.43			3.95	4.56
Belarus		2.46	2.42	2.69		5.52	4.35	4.81
Moldova			2.4	2.53			3.73	4.56
Georgia			2.69	2.72			4.65	4.68
Armenia			2.55	2.55			4.32	4.32
Azerbaijan			2.88	2.88			5.39	5.39
Argentina	2.94	3.07	3.1	3.12	6.77	7.25	6.93	7.3
Bangladesh			3.01	2.9			6.41	5.77
Brazil		2.95	3.03			7.37	7.15
Chile		3.03	3.07	3.16		7.55	6.92	7.12
China		2.95	3.05	2.87		7.29	6.83	6.53
India		2.93	3.04	2.95		6.7	6.53	5.14
	3.14	2.95	3	3.49	7.96	7.41	7.69	8.14
Nigeria		2.98	3.23	3.58		6.59	6.82	6.87
Pakistan			3.03	2.94
Peru			2.91	2.95			6.36	6.44
Philippines			3.32	3.27			6.84	6.65
Puerto Rico			3.33	3.47			8.1	8.49
South Africa	3.05	2.97	3.16	3.22	6.79	6.72	6.08	6.31
South Korea		2.86	3	2.96		5.33	6.69	6.21
Taiwan			3.14	3.19			6.89	6.56
Turkey		3.08	3.37	2.91		6.41	6.18	5.62
Venezuela			3.48	3.42			6.72	7.52

(Source: World Value Survey)

Findings around the Globe also shows beside the various economic indicators such as GDP, Unemployment, Income and Inflation, non-financial variables such as social capital, loyalty, civic virtue or intrinsic motivation have a strong influence of on self-reported satisfaction with life and happiness in life.

By - Prasoon S Majumdar