Yesterday I mentioned David Cameron's plan to introduce a national happiness index in the UK. This is not a new idea, and surveys have been going on for decades, and in 2003 a study looked at some of this data in comparison to inequality.
This is a pretty simple study in principle - with two variables, measured in a few countries, and over a few time points. But the results all depend on:
1) Whether the variables can be accurately measured
2) Whether they are measured in the same way in different places and times
Here and there I've mentioned some of the work on measuring happiness. I don't blame you for being skeptical about this, but there's good reason to think these surveys are measuring 'something' that's logical to give the label "well-being" to (I tend to use well-being/subjective well-being and happiness interchangeably, but that's just laziness and these are separate but correlated things). Maybe I should write something about that specifically? In this paper they used a few different surveys, the Eurobarometer being one, and the United States General Social Survey being another. These questions ask how happy people are and 4 and 3 point scales respectively.
For inequality, they use data from Wu et al (2002) in the US, and Deininger and Squire (1996) for Europe, which each pull a lot of data on government transfers, tax liability and credit for households, combined with some other stuff. I'll have to take their word that these are valid enough to use (if you have any knowledge of these papers, let me know if you think they are or not).
Keeping these caveats in mind, here's what they found.
In the US
In the US, happiness and inequality did not tend to go together overall. This relationship weakened but was still present after controlling for personal income, unemployment status, crime rate.
When splitting the data by income, comparing the top half to the lower half they found an intersting result - the happiness levels of the poor were unaffected by inequality, while the rich half showed a significant negative relationship, which strengthened after unemployment data was taken into account. They report that for the rich group, an increase of one standard deviation in inequality is equivalent to 58% of the effect of leaving self-employment (the link between self-employment and happiness was strong in the right group but not the poor group).
Some other comparisons could be made - falling unemployed has a greater impact on the happiness of people who report they are politically right (14% drop versus 8.4% drop in the left-wingers). Maybe lefties identify with their work less strongly, or assign the cause of their unemployment to political rather than personal factors.
In Europe
One thing I noticed as I was reading through this paper. The abstract says:
"We find that individuals have a lower tendency to report themselves happy when inequality is high, even after controlling for individual income, a large set of personal characteristics, and year and country (or, in the case of the US, state) dummies. The effect, however, is more precisely defined statistically in Europe than in the US."
But in the paper itself, they say that for the US, the "[t]he coefficient on inequality is negative
and significant at conventional levels," while when discussing the analysis for Europe they say: "we add the inequality variable. Although it has a negative sign, the effect is only significant at the 14% level. The coefficient turns larger (more negative) and significant at the 2% level when unemployment and inflation rates are included in column 3." Is it just me or is that the opposite of what the abstract says, and it's more precisely defined in the US? Since in Europe, it's only significant at conventional levels (5%, presumably) when they add unemployment and inflation.
That's for the overall data thought. When the data was split by left and right political leanings, the results showed a higher tendency of left leaning individuals to report being less happy when inequality is higher. In terms of the rich/poor split, poor people are affected by it, while the rich are unaffected. For example, when the Gini increases by one standard deviation, 3.7% fewer people report they are "Very satisfied." These results are much more precisely defined statistically, so I guess what they said in the abstract is right after all.
If you buy into this data, there's a big difference between Europe and the US in terms of how inequality influences happiness. In Europe, the poor and the left are negatively influenced, in the United States, the rich are negatively influenced. To put this another way, the European right and the American right are not negatively influenced by inequality, nor is there a difference in this regard between the European rich and the American rich. But there is a difference between the European and American left, and the European and American poor. The study suggests that the reason for this might be higher perceived social mobility in the US, where poor people feel they can 'make it', while in Europe they feel relatively stuck.
One way this is relevant to the proposed happiness index, is that some people argue for well-being as an end goal. But what if it conflicts with another deeply held political or moral value? In this case it didn't seem to, but what if it does? For instance, would a left-winger want more equality even at the expense of well-being? Or would a right-winger want more market freedom at the expense of well-being?
References:
Alesina, A., Di Tella, R.,&MacCulloch, R. (2004). Inequality and happiness: are Europeans and Americans different? Journal of Public Economics, 88(9-10), 2009-2042. Deininger, K., Squire, L., (1996). A new data set measuring income inequality. World Bank Economic Review, 10(3), 565 – 591.
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