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Research Programmes | Wellbeing:

The Causes and Effects of Wellbeing

Overview

For policy-makers to take subjective wellbeing seriously, we have to be able to show, in a quantitative way, what causes wellbeing and how wellbeing affects other things that policy-makers care about, like education and physical health. At present, we lack such an integrated life-course model, one which treats wellbeing both as an outcome of interest and as a causal determinant of other things. Researchers at the CEP are currently working on estimating an integrated life-course model, in addition to carrying out extensive empirical work investigating different causes of happiness and how well-being affects important outcomes. This work informs our contribution to the cross-cutting strand of the What Works Centre for Wellbeing.

Our work in this area is organised in the following areas:


  • Development of an Integrated Life-Course Model

    Our current research, funded by the US National Institute on Aging, ESRC and the John Templeton Foundation, estimates an integrated life-course model of how adult life-satisfaction is predicted by childhood influences, acting both directly and (indirectly) through adult circumstances. Using the British Cohort Study (1970), Richard Layard and co-authors find that the most powerful childhood predictor of adult life-satisfaction is the child's emotional health. Next comes the child's conduct. The least powerful predictor is the child's intellectual development. This has obvious implications for educational policy. Among adult circumstances, family income accounts for only 0.5% of the variance of life-satisfaction. Mental and physical health are much more important

    Further reading:
    What Predicts a Successful Life? A Life-Course Model of Well-Being - published in The Economic Journal, Volume 124, Issue 580, pages F720-F738, November 2014.

    The Key Determinants of Happiness and Misery, World Happiness Report 2017 (Chapter 5).

    The Origins of Happiness: The Science of Wellbeing over the Life Course (forthcoming), Princeton University Press. See CentrePiece, Spring 2017

  • We are now part of a consortium of researchers estimating models of the life course determinants of subjective well-being, based on longitudinal data for a number of countries, co-ordinated by the OECD.

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  • Causes of Happiness

    A number of studies have focused on providing evidence on the links between a number of factors and wellbeing.

    Happiness and Misery

    Layard, Clark and Senik (2012) discuss the causes of happiness and misery, based on 30 years of research on the topic. Both external and personal features determine well-being. Some of the important external factors include income, work, community and governance, and values and religion. More "personal" factors include mental and physical health, family experience, education, gender, and age. Many of these factors have a two-way interaction with happiness - physical health may improve happiness, while happiness improves physical health. An analysis of all these factors strikingly shows that while absolute income is important in poor countries, in richer countries comparative income is probably the most important. Many other variables have a more powerful effect on happiness, including social trust, quality of work, and freedom of choice and political participation.

    "The causes of happiness and misery" (with A. E Clark and C Senik) in J. F. Helliwell, R. Layard and J. Sachs (eds) .World Happiness Report 2012.

    Mental Health

    As discussed in Fleche and Layard (2015), mental health is the biggest single predictor of life-satisfaction. This is so in the UK, USA, Germany and Australia. It explains as much of the variance of life satisfaction in the population of a country than physical health does, and much more than unemployment and income do. Income explains 1% of the variance of life-satisfaction or less. However, in rich countries, under a third of people with diagnosable mental illness are in treatment. Therefore, extensive work on the CEP's Wellbeing Programme is focused on this area and the importance of policies required to deal with mental illness, see the Mental Health section.

    Also see, CentrePiece Article: Misery and Mental Health, February 2016

    Genetics

    Jan-Emmanuel De Neve and co-authors (2012) explore the influence of genetic variation on happiness by employing a twin design and genetic association study. Their twin study shows that about 33% of the variation in happiness is explained by genes. De Neve and co-authors (2013) also apply a recently-developed method to estimate 'common narrow heritability': the fraction of variance in subjective wellbeing that can be explained by the cumulative additive effects of genetic polymorphisms that are common in the population. They use a pooled sample of over 11,000 unrelated, comprehensively-genotyped individuals and estimate the fraction to be 12-18% (after correction for measurement error).

    Genes, Economics and Happiness - this was subsequently published in Journal of Neuroscience, Psychology, and Economics, 2012.
    Molecular Genetics and Subjective Well-Being - this was subsequently published in Proceedings of the National Academy of Sciences (PNAS), 2013).

    De Neve is working with others to identify specific genes that are significantly associated with higher levels of life satisfaction, as part of a large international consortium for data-pooling.

    Income

    - The marginal utility of income

    Richard Layard, Guy Mayraz and Stephen Nickell (2007) estimate the curvature of the income-happiness relation using four large cross-sectional surveys of subjective happiness and two panel surveys. Altogether, the data cover over 50 countries and time periods between 1972 and 2005. The authors obtain very similar results from each survey. The highest (absolute) value is 1.34 and the lowest is 1.19, with a combined estimate of 1.26. The results are also very similar for subgroups in the population. They also examine whether these estimates (which are based directly on the scale of reported happiness) could be biased upwards if true utility is convex with respect to reported happiness. They find some evidence of such bias, but it is small-yielding a new estimated elasticity of 1.24 for the combined sample.

    The Marginal Utility of Income - this was subsequently published in the Journal of Public Economics, 2008.

    - Relative income

    In various papers, we have shown the importance of other peoples' incomes for one's own happiness. See:

    Does Relative Income Matter? Are the Critics Right?, R. Layard, G. Mayraz, S.J. Nickell, CEP Discussion Paper 918 (2009). This was published in Diener, E., Helliwell, J.F. and Kahneman, D., (eds.), International differences in Well-Being. New York: Oxford University Press.

    Life Satisfaction and Relative Income: Perceptions and Evidence, G. Mayraz, G.G. Wagner, J. Schupp, CEP Discussion Paper 938 (2009)

    - Income gains versus losses

    Andrew Clark and co-authors (2013) explore whether income gains and losses impact on well-being differently. They use subjective well-being data from Germany and the UK and find that experienced falls in income have a larger impact on well-being than equivalent income gains. Their findings show that loss aversion applies to experienced losses. They conclude that longitudinal studies of the income/wellbeing relationship may, by failing to take account of loss aversion, have overestimated the positive effect of income for wellbeing. Moreover, societal wellbeing may be best served by small and stable income increases even if such stability impairs long-term growth.

    Money, Well-being and Loss Aversion: Does an Income Loss have a Greater Effect on Well-being than an Equivalent Income Gain? - this article was published in Psychological Science, 2013.

    De Neve and co-authors (2014) ask, Are individuals more sensitive to losses than gains in terms of economic growth? Using subjective wellbeing data, they observe an asymmetry in the way positive and negative economic growth are experienced. They find that measures of life-satisfaction and affect are more than twice as sensitive to negative economic growth as compared to positive growth, using Gallup World Poll data from over 150 countries, BRFSS data on 2.5 million US respondents, and Eurobarometer data that cover multiple business cycles over four decades. This research provides a new perspective on the welfare cost of business cycles and has implications for growth policy and our understanding of the long-run relationship between GDP and subjective wellbeing.

    The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data
    In brief: Business cycle blues, CentrePiece, Winter 2014/15

    Hannes Schwandt (2014) questions if wealth shocks affect the health of the elderly in developed countries? Exploiting the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees, he uses data from the Health and Retirement Study to construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health.  

    Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations 

    Adaptation to poverty

    Andrew Clark, Conchita D'Ambrosio and Simone Ghislandi (2014) consider the link between poverty and subjective wellbeing, and focus in particular on potential adaptation to poverty. They use panel data on almost 54,000 individuals living in Germany from 1985 to 2012 to show first that life-satisfaction falls with both the incidence and intensity of contemporaneous poverty. They then reveal that there is little evidence of adaptation within a poverty spell: poverty starts bad and stays bad in terms of subjective well-being. They cannot identify any cause of poverty entry which explains the overall lack of poverty adaptation.

    Adaptation to Poverty in Long-Run Panel Data

    Economic Growth

    Andrew Clark, Sarah Fleche and Claudia Senik (2014) look at how economic growth evens-out happiness. In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has fallen in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the "very unhappy" and the "perfectly happy". Lower happiness inequality is found both between and within countries, and between and within individuals. Their cross-country regression results argue that the extension of various public goods helps to explain this greater happiness homogeneity. This new stylised fact arguably comes as a bonus to the Easterlin paradox, offering a somewhat brighter perspective for developing countries. 

    Economic Growth Evens-Out Happiness: Evidence from Six Surveys - published in Review of Income and Wealth, March 2015.

    The share of income held by the top 1 percent in many countries around the world has been rising persistently over the last 30 years. But little is known about how the rising top income shares affect human well-being. Richard V. Burkhauser, Jan-Emmanuel De Neve and Nattavudh Powdthavee (2016) study the latest data to examine the relationship between top income share and different dimensions of subjective well-being. They find top income shares to be significantly correlated with lower life evaluation and higher levels of negative emotional well-being, but not positive emotional well-being. The results are robust to household income, individual's socio-economic status, and macroeconomic environment controls.

    Top Incomes and Human Well-Being Around the World

    Social mobility

    Paul Dolan and Grace Lordan (2013) examine how intergenerational mobility affects subjective wellbeing (SWB) using the British Cohort Study. They find that relative income mobility is a significant predictor of life satisfaction and mental health, whether people move upward or downward. They present evidence that suggests much of the effect of income mobility on SWB is due to changes in the perception of financial security. But those who slide down are still less satisfied with their lives over and above any effect of financial insecurity. Overall, there is an asymmetric effect of income mobility: the losses from sliding down are larger than the gains from moving up.

    Moving Up and Sliding Down: An Empirical Assessment of the Effect of Social Mobility on Subjective Wellbeing

    Andrew Clark and Emanuela D'Angelo look at the relationships between social mobility, well-being and political preferences. Using the British Household Panel Survey, they show that social status and greater mobility with respect to parents are positively associated with SWB. They also find that greater social status is associated with less favourable attitudes to redistribution and the public sector, but that greater upward mobility is associated with more Leftwing attitudes. These attitudes translate into actual reported voting behaviour. It appears therefore that upwards social mobility produces satisfied Left-wingers.

    Upward Social Mobility, Wellbeing and Political Preferences: Evidence from the BHPS.

    Education

    A paper by Nattavudh Powdthavee et al (2013) explores the direct and indirect well-being effects of extra schooling induced through compulsory schooling laws in Australia. They find the net effect of schooling on later SWB to be positive, though this effect is larger and statistically more robust for men than for women. They also show that the compulsory schooling effect on male's SWB is indirect and is mediated through income.

    The Marginal Income Effect of Education on Happiness: Estimating the Direct and Indirect Effects of Compulsory Schooling on Well-Being in Australia - this was published in Social Science and Medicine, 2014.

    Matt Dickson, Paul Gregg and Harriet Robinson (2014) study the intergenerational effects of parents' education on their children's educational outcomes. Using data from the Avon Longitudinal Study of Parents and Children - a rich cohort dataset of children born in the early 1990s in Avon, England - allows them to examine the timing of impacts throughout the child's life, from pre-school assessments through the school years to the final exams at the end of the compulsory schooling period. They find that increasing parental education has a positive causal effect on children's outcomes that is evident at age 4 and continues to be visible up to and including the high stakes exams taken at age 16.

    Early, Late or Never? When Does Parental Education Impact Child Outcomes? 

    Age

    Hannes Schwandt (2013) explores the relationship between age and wellbeing, in the context of the established finding that wellbeing follows a U-shape over age. Some theories have assumed that the U-shape is caused by unmet expectations that are felt painfully in midlife but beneficially abandoned and experienced with less regret during old age. Using data on life satisfaction expectations, matched to subsequent realizations, he finds evidence to support this. People make errors in predicting their life satisfaction over the life cycle, expecting increases in young adulthood and decreases during old age. These findings support theories that unmet expectations drive the age U-shape in wellbeing.

    Unmet Aspirations as an Explanation for the Age U-Shape in Human Wellbeing

    Sexuality

    Nattavudh Powdthavee and Mark Wooden (2014) study how the differential treatment of sexual minorities could influence subjective reports of overall well-being. Survey data from Australia and the UK are used to estimate a simultaneous equations model of life satisfaction. The model allows for self-reported sexual identity to influence a measure of life satisfaction both directly and indirectly through seven different channels: (i) income; (ii) employment; (iii) health (iv) partner relationships; (v) children; (vi) friendship networks; and (vii) education. Lesbian, gay and bisexual persons are found to be significantly less satisfied with their lives than otherwise comparable heterosexual persons. In both countries this is the result of a combination of direct and indirect effects.

    What Can Life Satisfaction Data Tell Us About Discrimination Against Sexual Minorities? A Structural Equation Model for Australia and the United Kingdom

    Effects of Parental Unemployment on Children's wellbeing

    Nattavudh Powdthavee and James Vernoit (2012) study the consequences of past parental unemployment on the current happiness and self-esteem of their children during adolescence. They use longitudinal data on British youths and find that a past unemployment spell of the father has important consequences for their children and leads to them having both lower subjective well-being and self-confidence. They also show that changes in adolescents' well-being and self-esteem predicts educational attainments at 16. Together these findings offer new evidence of unemployment scarring on children's livelihood.

    The Transferable Scars: A Longitudinal Evidence of Psychological Impact of Past Parental Unemployment on Adolescents in the United Kingdom - this was published in Labour Economics in 2013.

     Effects of early maternal employment on child outcomes

    Andrew E. Clark, Warn N. Lekfuangfu, Nattavudh Powdthavee and George Ward (2015) analyse the relationship between early maternal employment and child emotional and behavioural outcomes in early childhood and adolescence. Using rich data from a cohort of children born in the UK in the early 1990s, they find little evidence of a strong statistical relationship between early maternal employment and any of the emotional outcomes. However, there is some evidence that children whose mother is in full-time employment at the 18th month have worse behavioural outcomes at ages 4, 7, and 12. They suggest that these largely insignificant results may in part be explained by mothers who return to full-time work earlier being able to compensate their children: they highlight the role of fathers' time investment and alternative childcare arrangements in this respect.  

    Early Maternal Employment and Non-cognitive Outcomes in Early Childhood and Adolescence: Evidence from British Birth Cohort Data

    Parenting

    Francesca Cornaglia, Warn N. Lekfuangfu, Nattavudh Powdthavee, Nele Warrinnier (2014) propose a model in which parents have a subjective belief about the impact of their investment on the early skill formation of their children. This subjective belief is determined in part by locus of control (LOC), i.e. the extent to which individuals believe that their actions can influence future outcomes. Using a unique British cohort survey, they show that maternal LOC measured during the 1st-trimester strongly predicts early and late child cognitive and noncognitive outcomes. Further, they utilize the variation in maternal LOC to improve the specification typically used in the estimation of parental investment effects on child development.

    Locus of Control and Its Intergenerational Implications for Early Childhood Skill formation 

    Worker wellbeing

    Alex Bryson and co-authors (2015) show that worker wellbeing is not only related to the amount of compensation workers receive but also how they receive it. While previous theoretical and empirical work has often been pre-occupied with individual performance-related pay, they demonstrate a robust positive link between the receipt of a range of group performance schemes (profit shares, group bonuses and share ownership) and job satisfaction. Critically, this relationship remains after conditioning on wage levels, which suggests these pay methods provide utility to workers in addition to that through higher wages.

    Share Capitalism and Worker Wellbeing 

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  • Effects of Happiness

    Objective Benefits of Subjective Wellbeing

    Jan-Emmanuel De Neve and co-authors (2013) provide a survey of the 'hard' evidence on the effects of subjective well-being. In doing so, they complement the evidence on the determinants of well-being by showing that human well-being also affects outcomes of interest such as health, income, and social behaviour. Generally, they observe a dynamic relationship between happiness and other important aspects of our lives, with influence running in both directions.

    The Objective Benefits of Subjective Well-Being - this was a chapter in the World Happiness Report, 2013.

    Effect on income

    Much research in the social, psychological, and behavioral sciences has found that richer people tend to be happier. However, relatively little attention has been paid to whether happier individuals perform better financially in the first place. This possibility of reverse causality is understudied. Jan-Emmanuel De Neve and co-authors (2012) use data from a large US representative panel to show that adolescents and young adults who report higher life satisfaction or positive affect grow up to earn significantly higher levels of income later in life.

    Estimating the Influence of Life Satisfaction and Positive Affect on Later Income Using Sibling Fixed-Effects - this was subsequently published in Proceedings of the National Academy of Sciences (PNAS), 2012.

    Effect on workplace performance

    Does a worker's wellbeing improve his/her performance? This paper uses linked employer-employee data to investigate the relationship between employees' subjective wellbeing and workplace performance in Britain. The analyses show a clear, positive and statistically-significant relationship between the average level of job satisfaction at the workplace and workplace performance. This finding is present in both cross-sectional and panel analyses and is robust to various estimation methods and model specifications. In contrast, the authors find no association between levels of job-related affect and workplace performance.

    Does Worker Wellbeing Affect Workplace Performance? 

    Effect on risk taking

    Jan-Emmanuel De Neve and co-authors (2012) consider the link between happiness and risk-taking. They show that expected-utility theory predicts that 'happier' people will be less attracted to risky behaviours. Then using data on seatbelt use in a sample of 300,000 Americans, they document evidence strongly consistent with that prediction. The result is demonstrated with various methodological approaches, including Bayesian model-selection and instrumental-variable estimation (based on unhappiness caused by widowhood). Finally, using data on road accidents they find strongly corroborative longitudinal evidence. These results suggest that government policy may need to address the underlying happiness of individuals rather than focus on behavioural symptoms.

    Happiness as a Driver of Risk-Avoiding Behavior - this was subsequently published in Economica, 2014.

    Effect on voting behaviour

    Is it in politicians' interest to focus policy on subjective wellbeing (SWB)? Many governments and international organisations have recently begun to measure progress at least partly in terms of the population's SWB or happiness. George Ward (2015) investigates the extent to which citizens themselves judge national success in such terms. Using cross-country panel data, the analysis shows that the electoral fate of governing parties is associated not only with the state of the macroeconomy - as a substantial literature on 'economic voting' suggests - but also with the electorate's wider wellbeing.

    Is Happiness a Predictor of Election Results? 

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  • Decision-making

    How do feelings predict choice?

    Intuitively, how we feel about potential outcomes will determine our decisions. Surprisingly, however, little is known about the rules by which feelings are transformed into decisions. In this paper the authors characterize a computational model that uses feelings to predict choice. They reveal that this model predicts choice better than existing value-based models, showing a unique contribution of feelings to decisions, over and above value.

    Models of Affective Decision-making: How do Feelings Predict Choice? 

    Maximising subjective wellbeing

    Marc Fleurbaey and Hannes Schwandt (2015) conduct a new survey in which they ask respondents, after a standard Subjective Well-Being (SWB) question, if they can think of changes in their lives that would improve their SWB score. Results suggest that close to 90% of the respondents actually seek to maximize their SWB. Among the other goals that people pursue and for which they are willing to sacrifice some of their SWB, the prominent appear to be about their relatives and about their future self.  

    Do People Seek to Maximize Their Subjective Well-Being?

    Choosing to be happy?

    A large literature documents the correlates and causes of subjective well-being, or happiness. But few studies have investigated whether people choose happiness. Is happiness all that people want from life, or are they willing to sacrifice it for other attributes, such as income and health? Tackling this question has largely been the preserve of philosophers. In this article, Matthew D. Adler, Paul Dolan and Georgios Kavetsos (2015) find out just how much happiness matters to ordinary citizens.

    Would You Choose to be Happy? Tradeoffs between Happiness and the Other Dimensions of Life in a Large Population Survey

    Tax Payer Compliance

    Jan-Emmanuel De Neve, Cait Lamberton and Michael Norton (2014) conduct and analyse two experiments and show that when taxpayers can express a view about how their taxes are spent, they increase tax compliance. With tax noncompliance costing the US government $385billion annually, providing giving taxpayers a voice could have meaningful economic impact. At the same time, it could act as a two-way 'nudge', transforming tax payment from a passive experience to a channel of communication between taxpayers and government.

    Eliciting Taxpayer Preferences Increases Tax Compliance.

    Time discounting

    David Bradford, Paul Dolan and Matteo M. Galizzi (2014) use experimental data from incentive-compatible tests to measure time preferences, and a set of experimental tasks to measure time perception to disentangle hyperbolic discounting from subjective time perception.

    Looking Ahead: Subjective Time Perception and Individual Time Discounting

    Spillovers from Incentives in Health

    Paul Dolan and Matteo Galizzi (2014) conduct a controlled lab-field experiment to directly test the short-run spillover effects of one-off financial incentives in health. They consider how incentives affect effort in a physical activity task - and then how they spill over to subsequent eating behaviour. Compared to a control group, they find that low incentives increase effort and have little effect on eating behaviour. High incentives also induce more effort but lead to significantly more excess calories consumed. The key behavioural driver appears to be the level of satisfaction associated with the physical activity task, which 'licensed' highly paid subjects to indulge in more energy-dense food.

    Because I'm Worth It: A Lab-Field Experiment on the Spillover Effects of Incentives in Health

    Happiness and judgement

    Michalis Drouvelis and Nattavudh Powdthavee (2013) explore what determines people's moral judgments of selfish behaviors. They find that judgements in 'trust and gift' exchange games, which underlie many situations of economic and social significance, are functions of positive emotions. Moral judgments of selfish behaviours in the economic context depend strongly on other people's behaviours, but their relationships are significantly moderated by an increase in happiness for the person making the judgment. Subjects who report to be happier make less negative moral appraisals for a given scenario; and induced positive emotions lead subjects to arrive at less negative moral conclusions of selfish behaviour.

    Are Happier People Less Judgmental of Other People's Selfish Behaviors? Laboratory Evidence from Trust and Gift Exchange Games

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