Money for happiness

  • Notice by Raghav Gaiha – Vani S. Kulkarni – Veena S. Kulkarni (New Delhi, India)
  • Inter Press Service

The question of whether the rich are more satisfied with their lives is often taken for granted, although surveys, such as the Gallup World Poll, show that the relationship between subjective well-being and income is often weak, except in low-income countries in Africa and South Asia.

Researcher Daniel Kahneman and colleagues, for example, report that the correlation between household income and self-reported satisfaction or happiness in life generally ranges from 0.15 to 0.30. There are a few plausible reasons.

First, income growth primarily has a transitory effect on individuals’ reported life satisfaction as they adjust to material goods.

Second, relative income, rather than income level, affects well-being – earning more or less than others is more important than what one earns.

Third, although average life satisfaction in countries tends to increase with GDP per capita at low income levels, there is little increase in life satisfaction after GDP increases. per capita exceeds $ 10,000 (in purchasing power parity).

This article investigates the relationships between subjective well-being, which is narrowly defined to focus on economic well-being in India, and income variants, based on the only panel survey conducted in India Human Development Survey (IHDS).

Why do we need a new measure of well-being when there is already an objective and widely used measure of well-being, based on per capita income? There are several reasons.

The first stems from the distinction between decisional utility and experienced utility. In the standard approach to measuring well-being, ordinal preferences are inferred from observations of decisions supposedly made by rational agents (maximizing utility). The derived object is the decision utility.

In contrast, recent advances in psychology, sociology, behavioral economics, and the economics of happiness suggest that the utility of decision does not shed light on the utility associated with different experiences – hence the ’emphasis on metrics that focus more directly on experienced utility, including using subjective well-being (SWB).

We rely on the two rounds of the IHDS for 2005 and 2012. An important feature of the IHDS is that it collected data on SWB. The question asked was: Compared to seven years ago, would you say your household does the same economically, better or worse today?

Thus, the focus of this SWB is narrow. But since it is based on self-reports, it involves a broader view which is influenced by several factors other than income, assets, and employment like age, health, caste, etc.

There is a positive relationship between the SWB and per capita expenditure (a proxy for per capita income, which is often underestimated and underreported): the higher the expenditure in 2005, the higher the SWB was in 2012.

Priority of spending, over time, excludes the inverse causal link between a high SWB and high spending, i.e. higher welfare could also be associated with better performance resulting in an increase spending.

High expenses are associated with a decent standard of living, good schooling for children and financial security. Given that India’s comparable GDP per capita in 2003 (PPP) was $ 2,270, well below the threshold of $ 10,000, it is consistent with existing data.

Aspirations and achievements

In order to capture the gap between aspirations and achievements, we analyzed the relationship between SWB and the ratio of a household’s per capita expenditure to the highest per capita expenditure in the primary sampling unit.

Although this is a rough approximation of relative deprivation, we get a negative relationship between SWB and this ratio. In other words, the larger the gap, the greater the feeling of resentment and frustration, and the lower the SWB.

The greater the proportional increase in per capita expenditure between 2005 and 2012, the greater the SWB. To illustrate this, we construct three spending terciles in 2005: the first representing the extremely poor, the second representing the middle class, and the third representing the rich.

If the proportional increase in per capita spending is highest among the extremely poor and lowest among the rich, the higher the SWB of the extremely poor will be. This is indeed the case.

This provides important policy information.

The first is that in a lower middle income country like India, growth in spending or income is significant. However, the widening of the gap between aspirations and achievements or between the highest expenditure / income of a reference group and the actual expenditure / income of a household reflects resentment, frustration and loss of subjective well-being.

Thus, taxing the rich and allowing the extremely poor to take greater advantage of economic opportunities can improve welfare.

In conclusion, objective measures of well-being and subjective well-being are far more useful than either per se.

Veena S. Kulkarni teaches sociology at Arkansas State University and is a co-author of this article.
Raghav gaiha is a research affiliate, Center for Population Studies, University of Pennsylvania;
Vani S. Kulkarni teaches sociology at the University of Pennsylvania

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© Inter Press Service (2021) – All rights reservedOriginal source: Inter Press Service

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