How to make policy
when happiness is
the goal
14th Journées Louis-André Gérard-Varet,
Aix-en-Provence, 15 June 2015
Richard Layard
Assumption
1. Happiness is the overarching good
“The care of human life and happiness… is the
only legitimate object of good government”.
Thomas Jefferson
2. For a given 𝑯, we prefer a lower
SD(H) (social justice)
1+2. Social welfare = 𝒇 𝑯𝟏 , … , 𝑯𝒏
H cardinal
(Concave)
2
Agenda
Happiness:




Measurement
Causes
Policy evaluation
Some policy implications
3
1. Measurement
Typical Question:
Overall, how satisfied are you with
your life nowadays?
(where 0 means ‘not at all’, and 10
means ‘completely’)
4
1. Measurement
Evidence of validity of answers
1. Correlate with objective measurements of
brain function
2. Tally with friends’ assessments
3. Predict (e.g. life expectancy, productivity)
4. Can be explained (by e.g. income,
unemployment, family situation, health)
H cardinal
5
Mean Happiness in Survey (0-10 Scale)
Reported happiness over time
in the United States
AIPO (1950-1970)
7.5
NORC (1963-1976)
GSS (1972-2006)
7.0
6.5
6.0
5.5
1950
1960
1970
1980
Year
1990
2000
6
Mean Happiness in Survey (0-10 Scale)
Reported life-satisfaction in
West Germany
Eurobarometer 1973-2007
7.5
GSOEP 1985-2006
7.0
6.5
6.0
5.5
1970
1980
1990
2000
2010
Year
Source: Eurobarometer and German Socio-Economic Panel. Mean life satisfaction reported on a 0-10 scale
7
Reported life-satisfaction in
France
8
2. Causes: Income
Across individuals within countries (CS + panel)
Income has a positive effect and explains
under 2% out of the 20% of explained crosssectional variance.
Comparators’ income has a negative (and
often equally large) effect, especially in
richer countries. Confirmed by neuroscience.
So relative-income effect helps explain flat
time-series.
9
Diminishing marginal
utility of income
Best functional form
H
H = α log Y etc.
Argues for greater
equality.
Y
Source: Layard, R., Nickell, S.J. and Mayraz, G. (2008). 'The marginal utility of income', Journal of Public Economics, Special Issue:
Happiness and Public Economics, vol. 92(8-9), pp. 1846-1857.
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2. Causes: Income cont.
Across countries
Cross-section. Poor countries are less happy
but for many reasons besides income.
Time series. Uncertain. Wolfers v. Easterlin.
World happiness up .15 of a within-country
SD over last 40 years.
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Income and Happiness
Comparing Countries
Average of percent “happy”
and percent “satisfied”
100
95
90
85
80
75
70
65
60
55
Netherlands
Denmark Canada
Switzerland
Sweden Finland
USA
New Zealand
Norway
Austria
Singapore
Indonesia
Mexico
Australia Belgium
Colombia
UK
France
El Salvador
Czech Republic
Nigeria
Chile
Germany
Portugal
Venezuela
Italy
Argentina
Vietnam
Japan
Spain
Brazil
Uruguay
Slovenia
Israel
Philippines
Croatia
Greece
South Korea
Dominican
Republic Hungary
China
Egypt
South Africa
Algeria
Morocco
Poland
Peru
Uganda
Slovakia
Jordan
Iran
Estonia
India
Lithuania
Azerbaijan
Turkey
Bangladesh
Macedonia
Tanzania
Ireland
Pakistan
50
Georgia
45
Moldova
40
Latvia Belarus
Albania
Bulgaria
Romania
Zimbabwe
Ukraine
Russia
35
30
0
5,000
10,000
15,000
20,000
25,000
Income per head ($ per year)
Source: Layard (2011), Happiness: Lessons from a New Science (2nd Ed)
30,000
35,000
Differences Between
Countries
Partial correlation coefficients
Log GDP per head
Healthy life expectancy
Social support
Freedom
Absence of corruption
Lifesatisfaction
Positive
feelings
yesterday
0.28
0.25
0.29
0.15
0.18
–
0.24
0.43
0.49
–
2. Causes: Income cont.
Conclusion
(1) Long-run growth valuable but no more
than many other things.
N.B. Higher growth does not provide
finance for more doctors, nurses, teachers
and social workers.
(2) Short-run economic fluctuations are
very bad and should be avoided even it
reduces LR growth.
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2. Other Causes
External
Work
Family life
Community engagement
Internal
Physical health
Mental health
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Individual life-satisfaction at 34:
Current influences
(partial correlation coefficients)
LIFE-SATISFACTION AT 34
.06
Income
.09
Not
unemployed
ECONOMIC
.04
Education
level
.12
-.07
Married/
Cohabiting
SOCIAL
Criminality
.20
.07
Physical
health
(recorded
8 years
earlier)
Emotional
health
(recorded
8 years
earlier)
PERSONAL
Source: Layard, R., Clark, A.E., Cornaglia, F., Powdthavee, N. and Vernoit, J. (2014). 'What predicts a successful life?
A life-course model of well-being', The Economic Journal, vol. 124(F720-738).
Percentage of those in misery
having the stated characteristics
Australia
20
Poor (bottom 10%)
7
Unemployed
48
Ever diagnosed with depression/anxiety
22
Physical health problems (bottom 10%)
0
10
20
30
40
50
60
17
United States
27
Poor (bottom 10%)
13
Unemployed
Ever diagnosed with
depression/anxiety
61
Physical health problems
(bottom 10%)
14
0
20
40
60
Flèche and Layard (2015) “Does more of those in misery suffer from poverty, unemployment or mental illness?”, CEP Discussion Paper
80
18
Individual life-satisfaction at 34:
Influences from childhood
(partial correlation coefficients)
LIFE-SATISFACTION
.06
.03
.05
.09
.17
Family
Family socioCognitive
Emotional
Behaviour
psychological development
economic
developof
child
of child
ment of child
features
features
Source: Layard, R., Clark, A.E., Cornaglia, F., Powdthavee, N. and Vernoit, J. (2014). 'What predicts a successful life?
A life-course model of well-being', The Economic Journal, vol. 124(F720-738).
A model of the life-course
Background
+
Childhood
Adult
characteristics
Lifesatisfaction
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3. Policy evaluation
Assume public expenditure is
given. Therefore cost-effectiveness analysis, with a cut-off.
Undertake project if
′(𝑾𝒊)Δ𝑾𝒊
𝒊𝒇
𝑵𝒆𝒕 𝒄𝒐𝒔𝒕
>λ
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3.
Policy
evaluation
Issues
1. Hopefully an RCT gives SR effect, which
combined with the model gives ∆ 𝑾𝒊 .
2. Calculating Net Cost also requires a lifecourse model.
3. Weighting ∆ 𝑾𝒊 is a political issue.
4. Life-course model is priority for social
science.
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This could ultimately be main approach for
Health
Social Care
Employment
Law and order
Environment
Redistribution
where choice provides little evidence.
23
But revealed preference approach
provides much better evidence on
Transport
Business policy
Education
24
Health evaluation
Quality-adjusted life years
require ratio scale for H
25
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4. Policy implications: new priority for
mental health and social engagement
1.Mental illness should get parity of treatment in
healthcare
2.Preventive mental health vital
Parenting
Couples therapy
Schools should promote wellbeing
Youth services
3. Employment policy crucial
Apprenticeship guarantee + youth job guarantee.
NOT EXPENSIVE (ESPECIALLY IN NET TERMS).
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Economic cost of mental
illness
Mental illness is
 40% of all disability
 40% of all absenteeism
 40% of all incapacity benefits
The main illness of working age.
28
Degree of disability in each age
group (Numbers per 1,000)
70
Physical
60
50
40
Mental
30
20
10
0
0-14
15-29
30-44
45-59
60+
Source: World Health Organisation (WHO). (2008). The global burden of disease: 2004 update. Geneva: World Health Organisation.
Western Europe
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Treatable: e.g. Cognitive
Behavioural Therapy (CBT)
Cost €1,200 for 10 sessions
Recovery rates within 4 months
 Anxiety
50% mostly permanent
(better than pills)
 Depression 50% (with lower risk of
relapse than pills)
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Implication: no net cost to
government
Gross cost < Savings on disability
benefits + lost taxes
Gross cost < Savings on excess
physical healthcare if
person has given
physical condition +
mental illness
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Savings due to psychological therapy
91 U.S. trials
Cut annual physical healthcare costs by
20% (equivalent to €1,400).
In 28 studies, data on cost of therapy
showed savings exceeded cost in 26/28
cases.
Chiles, J.A., et al. (1999), "The impact of psychological interventions on medical cost offset: a meta-analytic review", Clinical
Psychology: Science and Practice, 6(2): 204-220.
32
Improving Access to
Psychological Therapy
2008
No evidence-based
treatments available in
National Health Service
2008-15
6,000 therapists trained
2015
400,000 patients treated
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The case for more health
expenditure
• In Britain we only authorise treatments
which cost less than £40,000 per QualityAdjusted Life Year (QALY).
• That cost reduces total life-satisfaction by
0.06 SDs of one year’s life-satisfaction.
• One extra QALY increases life-satisfaction
by 5 SDs of one year’s life-satisfaction.
• We should spend more.
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Will politicians listen?
Life-Satisfaction (LS) affects voting
Incumbent vote share
= 0.64 LS + 0.36 Economic Growth
- 0.06 Unemployment + 0.15 Inflation.
Source: Eurobarometer. All variables standardised. Controls include previous vote-share. See Ward, G (2015) “Is happiness a predictor of
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election results?”, CEP Discussion Paper No. 1343.
Individuals
www.actionforhappiness.org
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