Standard of living and happiness

Standard of living refers to the material basis of well-being, which is reflected in a person’s consumption level. Because of this, academics and policy analysts often use real income as a proxy to measure living standard. But this focuses on cash-income alone and leaves out the possible effects of non-cash income on the well-being of individuals. Non-cash incomes such as use of stock of consumer durables, goods and services received as gifts, assistance, health, recreation, etc. affect the people’s standard of living. Thus, standard of living of an individual or group of individuals is determined by their access to resources, which comprise of both cash and non-cash income.

Standard of living, in turn, is one of the important determinants of well-being or happiness. Obviously, improvement of living standard constitutes the most important objective of plans and programs of both developed and developing countries. Given this important role in actualizing the overall well-being of their citizens, it has been (and continues to be) a subject widely studied by various disciplines and agencies- governmental, non-governmental, multilateral, academic, etc. These studies also have a variety of themes, with poverty being the most common one. Studies on poverty have looked at its “causes, effects, and prevalence” and the extent to which it improved or worsened following change in government policies and programs. Inequality is another popular theme. These studies looked at the disparity in standards of living between rich and poor, sub-populations, ethnic groups, etc. Studies have also focused on how standards of living have changed over time.

Studies pertaining to the relationship between well-being and happiness emerged largely during the early 1970s. This upsurge in studies of well-being, or happiness, and living standard was provoked by the failure to notice commensurate improvement in well-being along with increased income. In his seminal article, Easterlin (1974) saw that while industrialized countries had experienced phenomenal economic growth over the past 50 years, there had been no corresponding rise in the happiness of their citizens. He observed that within a country, satisfaction of individuals with their lives varied with their level of income; i.e. richer people on the whole were more satisfied than their poorer fellow citizens. But he saw that average satisfaction levels within a country remained stable over time even in the face of rapid economic growth. He also saw that average level of satisfaction is not strongly correlated with income. In his updated study, he explicated that “happiness or subjective well-being, varies directly with one’s own income and inversely with incomes of others” (Easterlin 1995). In his most recent study, Easterlin (2001) argued that impacts of income on happiness or subjective well-being depend upon standards which change over time according to the individual’s expectations and social comparisons.

Several studies have then been carried out following Easterlin’s seminal work of 1974. Veenhoven (1988 and 1991) found that people with higher income levels had higher levels of happiness or subjective well-being. He also found that after a certain threshold level of income, it did not impact subjective well-being so much. Clark and Oswald (1994) studied the relationship between unemployment and happiness and concluded that unemployed people had much lower levels of mental well-being than those with work. Oswald (1997) saw that in a developed nation “economic progress buys only a small amount of extra happiness”. Di Tella et al. (2001) found that people were happier when inflation and unemployment were low, and that unemployment affected happiness more than inflation. There are several other studies along the same vein. This paper does not intend to review the whole gamut of studies on happiness and income. What might, however, be appropriate is to sum up some common findings of these studies. Most of these studies come to the following conclusions: i) in several industrialized countries where income has drastically increased, subjective well-being or happiness has not increased or in some cases it has fallen; ii) relative income affects happiness more than absolute income; happiness or subjective well-being depends on expectations and social comparisons, iii) income affects well-being of people but beyond a threshold level, it ceases to influence well-being; and iv) people adapt to circumstances and those with higher adaptation capabilities tend to be happier even when their incomes are very low.

Following the framework of past studies, this paper will study the relationship between the economic living standards of people and their reported level of happiness. This study goes a step further than past studies in that it also looks at how non-cash income affects the well-being of people. The remaining part of the paper describes the survey; presents the empirical results of the survey, which are analysed in terms of districts; studies the relationship between various aspects of living standard that people experience and their reported level of happiness; and summarizes the findings of the study.