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Journal of Happiness Studies

24-01-2019 | Research Paper

Happiness Matters: Productivity Gains from Subjective Well-Being

Authors: Charles Henri DiMaria, Chiara Peroni, Francesco Sarracino

Published in: Journal of Happiness Studies

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Abstract

This article studies the link between subjective well-being and productivity at the aggregate level, using a matched dataset from surveys and official statistics. Well-being and productivity are measured, respectively, by life satisfaction and total factor productivity. The analysis, which applies non-parametric frontier techniques in a production framework, finds that life satisfaction generates significant productivity gains in a sample of 20 European countries. These results confirm the evidence of a positive association between the variables of interest found at the individual and firm level, and support the view that promoting subjective well-being is not only desirable per se, but it is conducive to higher productivity and improved countries’ economic performances.

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Note that a basic measure of productivity is a ratio of output to inputs (OECD 2001).

DEA solves sets of cross-sectional linear programmes with optimisation techniques. This delivers distance measures which are interpreted as TFP indicators.

At the same time, DEA requires the observational units (countries) to be comparable and to have access to the same technology. We regard the set of countries in the sample as sufficiently homogeneous to obtain meaningful results.

The primary source of AMECO data is countries’ national accounts.

The year 2002 is not included as some of the countries in our sample were not surveyed. ESS survey documentation is available at http://ess.nsd.uib.no/ess/.

Various studies document that the 0 to 10 scale is a standard and reliable scale for measuring well-being (see Pavot and Diener 1993b; Krueger and Schkade 2008).

Various imputation techniques are available. We opted for mode replacement because this technique does not alter the distribution of the variable of interest and, therefore, this allows us to use the given sample weights. Alternative methods, such as the imputation using the predicted values from a happiness regression, may alter the original distribution of the variable. In this case it is necessary to re-compute the sample weights, which is not trivial.

Note that, while life satisfaction is an integer variable, average life satisfaction is measured on a continuous scale. Thus, we do not need to adopt DEA frameworks designed to deal with integer values.

This is because countries’ positions are established by comparing their output to the “optimal” level of output given by the unique frontier.

In a DEA framework, valid inputs are those that are under the control of the decision maker, or are quasi-fixed inputs. Other variables that might influence the outcome but are not under the control of managers are regarded as exogenous, and they are referred to as contextual variables.

Largely speaking, in DEA the definition of inputs and output set characterises the production technology. No functional form is specified for the transformation of inputs into outputs.

Note that the use of the rescaled GDP as output guarantees that changes in efficiency can only be attributed to the omitted variable (life satisfaction in our case). Intuitively, to meaningfully compare the efficiency scores, we need to “fix” the frontier. This is depicted in Fig. 3b.

Following Simar and Wilson (1998, 2000a, b), efficiency estimates were also obtained using a bootstrap procedure, rescaling GDP so that bootstrap estimates were close to unity. Results are available from authors on request.

The changes in efficiency following a unit change in life satisfaction should not be interpreted as the elasticities computable in a standard econometric framework. Note that it is not possible to compute derivatives of a piece-wise linear frontier.

Results available upon request to the authors.

The CRS assumption is easily relaxed in this setting, by adding the constraint that the \(\lambda\)s parameter sum to unity.

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Title: Happiness Matters: Productivity Gains from Subjective Well-Being
Authors: Charles Henri DiMaria
Chiara Peroni
Francesco Sarracino
Publication date: 24-01-2019
Publisher: Springer Netherlands
Published in: Journal of Happiness Studies
Print ISSN: 1389-4978
Electronic ISSN: 1573-7780
DOI: https://doi.org/10.1007/s10902-019-00074-1