A happy man sitting on a chair
The idea of measuring national happiness has been around for decades and was pioneered by the government of Bhutan in the 1970s. Since the global financial crisis interest in measuring, and understanding, what drives happiness, has risen.

For much of the last two hundred years economic progress was seen as the main driver of happiness. But once income passes a certain threshold that relationship seems to weaken. A US study in 2009 showed gains in income boosting happiness up to an annual income of round $75,000. Beyond that gains in happiness levelled off. The UN’s latest World Happiness Report shows that while US income per capita has more than doubled since 1972 measured happiness has remained roughly unchanged.

The apparent weakening in the relationship between income and happiness in many richer countries has fuelled interest in alternative measures of welfare. In 2011 David Cameron asked the UK’s Office of National Statistics (ONS) to compile an annual ‘well-being’ index. Each year some 200,000 Britons are asked a set of questions about their lives. The overall index currently scores 7.69/10, the highest reading since its inception.

For some happiness is a vague, subjective concept that does not allow meaningful comparisons across countries, groups or over time. Yet as Lord Richard Layard, dubbed the ‘happiness’ economist, observes, if policymakers are trying to raise overall welfare, we need to measure happiness. In response to the claim that self-assessed happiness is unreliable, Lord Layard notes that an individuals’ responses correlate with levels of the stress hormone cortisol and, indeed, life expectancy.

The annual World Happiness Report, co-authored by Lord Layard, ranks 156 countries by their happiness levels based on the results from Gallup World Poll surveys. Finland ranks as the world’s happiest country, followed by Norway, Denmark, Iceland and Switzerland. These five countries continually top the happiness league table. The bottom of the happiness league is dominated by low income countries, some of them, such as Syria, Afghanistan and Yemen, suffering from conflict.

What explains the position of the highest rated countries?

It helps that all are rich, advanced economies with high GDP per capita. This is one of the six factors that the UN has found support well-being. The top rated countries also score highly on the other five factors: healthy life expectancy, social support, freedom, trust and generosity. These influences are themselves a product of income, politics, culture, history and individual behaviour, and can substantially offset the effects of lower income levels. Thus Costa Rica and New Zealand rank above German and US in the happiness league, despite having significantly lower levels of GDP per head. Conversely, some relatively rich nations, including Saudi Arabia, Kuwait and Singapore, rank well down the happiness league.  

Government clearly has a significant influence. While tax rates in Scandinavia are high, citizens have access to high quality public services: free healthcare and university education, uncontested unemployment benefits and generous maternity leave. The top rated countries have high average life expectancies and low levels of income and gender inequality. Many studies suggest that peoples’ perceptions of material well-being are influenced by how they are faring relative to others; significant inequality tends to reduce happiness.

In the UK ONS research shows that work, health and relationships with family members are major influences on happiness. Having a secure job seems particularly important to well-being, and not solely because of the income. Work provides structure, self-esteem and social connections.

And the more an individual identifies with family, friends, colleagues, their local community and other groups the happier they tend to be.

Changes to lifestyles can make a big difference. Exercise and reducing time spent on social media are widely thought to contribute to happiness. Researchers at the OECD recently suggest that for those with the wherewithal paying others to do your chores reduces time stress. Reduced commuting times are associated with higher levels of happiness.

The research into happiness is still in its infancy and the current measures are far from perfect. Yet the same applies to measures of economic welfare, such as GDP per head, which have been around almost 100 years.

Aristotle said that, “happiness is the meaning and the purpose of life, the whole aim and end of human existence”. Happiness may be hard to measure; but it warrants the effort.

PS: Following our note on the Universal Basic Income (UBI) I had an interesting chat last week with Anthony Painter at the Royal Society of Arts (RSA). The RSA has proposed that as a step to a full UBI the government should give all adults under 55 £10,000 over two years, partly funded by reducing existing benefits and clawing back tax allowances. The idea would be to help people to retrain, set up businesses, care for relatives and to provide a buffer against adverse technological change. Even this, more limited form of UBI would cost £15 billion on the RSA’s estimates. Anthony told me that part of the inspiration for the RSA’s proposal was Mrs Thatcher’s Enterprise Allowance Scheme in the early 1980s that provided a grant to unemployed people to start a business. It funded 325,000 people, including the artist Tracey Emin and Superdry founder Julian Dunkerton.

PPS: A new report by the Bank for International Settlements (BIS) shows that cash use is on the rise around the world, despite the increasing prevalence of digital payment methods. Cash in circulation as a share of global GDP has risen from around 7% in 2000 to 9% in 2015. Although there has been a rise in the circulation of both smaller and higher denomination notes, it is the latter that has most driven increased cash circulation. BIS speculate that people are less trusting of banks following the financial crisis and are choosing to keep more of their savings in cash. Iceland, a country hit particularly hard by the crisis, has seen the share of cash in circulation jump from less than 1% in 2007 to almost 2.5% today.