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As societies become richer, they do not become happier. This paradox has led to a growing interest in the science of wellbeing, and how policymakers can evaluate policies in terms of what will improve wellbeing. Economists investigate what is important for wellbeing and the influence of wellbeing on working life, education and health.

How should we judge the progress of society? According to the 18th century Enlightenment, the criterion should be the wellbeing of the people but until recently there was not enough information to apply this approach, and many economists used national income as a proxy for social wellbeing. But there has been a strong worldwide movement to go "beyond GDP" and the Centre for Economic Performance's wellbeing programme has contributed significantly to this movement.

The first issue to tackle was how to measure wellbeing. The most commonly-used measure is life satisfaction. People are asked "Overall, how satisfied are you with your life these days?" and asked to answer on a scale of 0-10 with 0 meaning very dissatisfied and 10 meaning very satisfied. This method of evaluation has a huge appeal, since it is democratic - it leaves the evaluation of a person's life to their own judgement. The majority of findings in the science of wellbeing relate to that outcome: life satisfaction.

But some would argue that what really matters is people's emotional state, hour by hour or day by day. For example, the Gallup World Poll asks questions like "How happy were you yesterday?" and "How anxious were you yesterday?" A third concept of wellbeing involves the so-called eudaimonic approach, typified by the question "How worthwhile do you feel the things you do in your life are?"

To promote the use of wellbeing as a guide to policy; Paul Dolan, Richard Layard and Robert Metcalfe proposed that the UK's Office of National Statistics should ask all four of these questions. And since 2011, all four have been included in official National Statistics. Following on, the Organisation for Economic Co-operation and Development (OECD) urged its members to follow suit, and by 2015, national statistical offices in 34 of the then 35 members had collected life evaluation data.

What makes us happy?

The next step was to explain the huge variation in wellbeing, since this is the most fundamental inequality that there is. Across the world, one sixth of people have a life-satisfaction score of three or below, while one sixth rate their life-satisfaction at eight or above. Some of this variation (80 per cent) is within countries and some (20 per cent) is between countries.

What causes this huge variation within countries? To explain it, CEP researchers Layard, Andrew Clark, Sarah Flèche, Nattavudh Powdthavee and George Ward analysed longitudinal surveys from Britain, Germany, Australia and the USA. The findings, published in the book The Origins of Happiness, were very similar in all the countries and are illustrated in the following figure for the UK. This shows the partial correlation coefficients between each factor and life-satisfaction - a measure of the extent to which each factor accounts for the inequality of wellbeing in the population.

Graph: Partial correlation coefficients
Chart: Which current circumstances explain life-satisfaction (UK)? (Partial correlation coefficients)

Most people are surprised at the small role that income plays in explaining wellbeing, and they ask whether income is not relatively more important if we focus on explaining low wellbeing. It is not.

But clarifying the effect of income has required work. First, CEP research showed in six separate surveys that, as people become richer, extra income has a smaller and smaller effect on wellbeing (the "diminishing marginal utility of income" which had never before been studied directly). Second, researchers showed that people care more about their income relative to other people than they care about their absolute income. This helps to explain why in some countries like the US (though they are a minority) wellbeing has not risen at all despite economic growth. An additional explanation is that at country level, gains in income raise wellbeing less than falls in income reduce wellbeing.

Making mental health matter

The figure shown above is hugely useful because it shows which issues account for the greatest amount of the misery in our society. Mental health emerges as the number one problem. But that is not enough to make it a policy priority. There also have to be effective policies that do not cost too much. Fortunately there are, and in 2005, Layard, David Clark, Martin Knapp and Guy Mayraz argued that a service rolling out modern evidence-based psychological therapies would pay for itself in savings on benefits and lost taxes, and in reduced costs of physical healthcare. This was confirmed in a pilot study in Doncaster and Newham. The subsequent Depression Report highlighting the argument was published by The Observer newspaper in a supplement. Following this, in 2008 the UK government launched the Improving Access to Psychological Therapies service within the NHS. By 2017 this treated more than 960,000 people a year, of whom 50 per cent recover within an average of eight sessions of treatment.

But it is even better to prevent mental illness than to cure it. Schools have a major role to play here: work using longitudinal surveys shows that schools have a huge effect on pupil wellbeing. By identifying evidence-based programmes that could be used in British secondary schools, researchers at CEP worked with the charity Bounce Forward to design a curriculum on life skills called Healthy Minds. It involves one hour a week for four years using well-tested materials. And the overall curriculum, when tested against controls, produced changes in the quality of life at 1/30 of the maximum cost allowed for innovations within the NHS.

Adults too can improve their life skills. In 2011, Layard co-founded Action for Happiness - a citizens' movement to promote a happier and more compassionate way of living. Members are offered a course called Exploring What Matters, involving eight sessions of two hours each, using structured materials. When tested against controls, this raised happiness as much as finding a job or a partner. Action for Happiness was assessed by Founders Pledge, which links entrepreneurs with charities. It concluded that the supporting the charity was an "unusually cost-effective donation opportunity for a high-income country intervention". To help adults to become happier, Dolan wrote two best-selling books. The first made the important distinction between purpose and pleasure and the second showed how easily people make themselves miserable by trying to fulfil conventional expectations.

From the ballot box to call centres: the far-reaching impact of wellbeing

Policymakers who do not accept that wellbeing should be the outcome by which policies are assessed should still pay serious attention to wellbeing. These two examples show why:

First, politicians. In path-breaking work, George Ward analysed national elections in Europe since the 1970s. He found that people's life satisfaction had more effect on the outcome of an election than the state of the economy did. It's not "the economy, stupid" but wellbeing. So, when they make policy, politicians have every reason to choose policies which produce the most wellbeing.

Second, managers. In highly original work, Jan-Emmanuel De Neve and colleagues analysed the performance of call-centre workers. They showed that when the weather was good, people working in natural light had better wellbeing and that higher wellbeing then produced higher productivity.

How to buy happiness

For those who view wellbeing as the key final outcome in a society, the issue is how to maximise it. For a policymaker with a given budget, the correct approach is to choose those policies producing the highest total benefit (in terms of wellbeing) per pound of net cost. But to estimate these benefits and costs is a real challenge, comparable to the challenge of traditional cost-benefit analysis (where benefits are measured in units of money). The method is well explained in a manual by Paul Frijters and Christian Krekel for the What Works Centre for Wellbeing.

Following discussions with academics from CEP, the HM Treasury Green Book, which sets out government guidance on how to appraise public investments, now describes the objective of policy as "social value" - this includes "all significant costs and benefits that affect the welfare and wellbeing of the population, not just market effects". The Green Book also allows for the use of direct measures of wellbeing and has published a 90-page supplement: "Green Book Supplementary Guidance: Wellbeing". In 2021, the Leader of the Opposition, Keir Starmer, proposed a similar approach telling the Labour Party annual conference: "With every pound spent on your behalf we would expect the Treasury to weigh not just its effect on national income but also, its effect on wellbeing".

An effective system for cost-effectiveness analysis with wellbeing as the measure of benefit would include these three things:

  • Experimental evidence of how a policy affects wellbeing, at least in the short-term.
  • A model of how changes at one point in life affect subsequent periods.
  • A cost model of how these subsequent changes affect the budget of the budget-holder.

The next step for researchers is to build such a model, as well as to understand how to "level-up" wellbeing so that people have the same chance of happiness wherever they live.

A key issue in policy evaluation is the discount rate, this allows costs and benefits with different time spans to be compared on a common "present value" basis. It is based on the concept that generally people prefer to receive goods and services now, rather than later - but in some cases, such as health, smaller discounts are used than standard - this has the effect of making the future much more important for such projects. This is particularly vital for the issue of climate change. In 2015 Layard, with six others, proposed a "Global Apollo Programme" in which countries would double their public research budgets for clean energy research. Later that year, such a programme was launched at the COP21 summit in Paris under the name Mission Innovation. It is now approaching its target, with increasing international cooperation in this crucial endeavour.

The world wellbeing movement

At the international level, the wellbeing debate has centred around the World Happiness Report. This began in 2012 with Layard as a co-editor, soon joined by Jan-Emmanuel De Neve as another co-editor. The report gets over a million downloads each year due to its rankings of countries by their level of wellbeing, and its important analysis of the 20 per cent overall variance in happiness due to between-country factors like freedom, corruption, and social support. Together with the OECD How's Life? database, it has helped greatly to stimulate policymakers interest in wellbeing, and in recent years five countries (New Zealand, Finland, Iceland, Scotland and Wales) have adopted wellbeing as their government's objective.

For more governments to adopt wellbeing as their objective, thousands of people well-trained in wellbeing science will be needed - to act as analysts and policymakers. Courses in wellbeing are developing rapidly and Cambridge University Press is due to publish a textbook by Layard and De Neve on the subject in September 2022.

Work at CEP has helped put wellbeing at the forefront of a major paradigm shift which is likely in coming years to transform the nature of policymaking and, perhaps, political debate. It will also have an increasing impact on other branches of social science.

By Richard Layard