An exploratory study on the importance of the happiness index as a
measurement that encompasses a host of other economic indices
Abstract:
Research question: This paper would attempt to analyse the importance of
happiness index for a nation. How does achieving this index help in attaining other
important economic parameters? In calculating this index, are there any economic
assumptions? Which economies have achieved a high happiness index? What are
the factors that India needs to take into account to improve its ranking?
Keywords:
Research paper by: Geetika Jain
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Content:
1. Introduction
2. Growth vs Development
3. Definition and measurement of happiness index
4. Difference between other indices and happiness index
5. How have economies like Bhutan achieved a high index?
6. Factors that India has to concentrate on to improve its ranking
7. Importance of this index in achieving growth and development for an
economy
8. Conclusion and the way forward
9. Bibliography
Introduction
Happiness Economics
Happiness economics is the formal academic study of the relationship between
individual satisfaction and economic issues such as employment and wealth. It
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applies econometric analysis to discover which factors increase or decrease human
well-being and quality of life. Surveys and various indices are used to track what
various countries offer their citizens and their effect on happiness.
Happiness and subjective well-being have been studied in economics for a very
long time. The earliest “Happiness Economists” were in fact 19th century moral
philosophers. However, by the 1930s, Lionel Robbins’ view that only ordinal and
not cardinal utility should be studied dominated the economics profession.
Research on happiness or subjective well-being has received considerable attention
in recent times especially due to advances in behavioural economics. Prominent
economists like Easterlin (1973) have proposed that in the long term, growth rates
of happiness and income are not significantly related. This is due to social
comparison. If this is true, the main goal of economic policy-making would not be
to raise real per capita income in poor countries. It has been established that there
are other crucial determinants of happiness that are relevant in the process of
economic development, for example, personal health and social status at the
individual level while political participation rights at the aggregate level.
Unemployment is a factor both at individual and societal level. Even if the
‘Easterlin paradox’ was not true, happiness research does not support that
happiness grows linearly with per capita income. It has been established that there
are diminishing marginal returns to higher income in terms of subjective well-
being.
The United Nations first published the World Happiness Report in 2012 following
the adoption of a resolution titled “Happiness: Towards a Holistic Definition of
Development”. It is an annual report on the state of global happiness and currently
155 countries participate in it.
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Figure 1: UN logo of World Happiness Report
Source: https://worldhappiness.report/
When we assess a society or a policy, we should not look only at the average
happiness it brings. We should also consider the amount of misery or low life
satisfaction that it causes. To prevent misery, governments and international
organisations should establish rights such as those in the United Nations’ Universal
Declaration of Human Rights (UDHR). They should also broaden the Sustainable
Development Goals (SDGs) to consider well-being and economic policy jointly in
order to ensure happiness. These rights and goals are essential tools for increasing
human happiness and reducing misery. Once happiness is accepted as the goal of
the government, it has an impact on other aspects. Health, especially mental health,
assumes even more priority, as does the quality of work, family life, and
community. All government policies should be evaluated against the touchstone of
well-being for money spent.
Sustainability means meeting one's own needs without compromising the ability of
future generations to meet their own needs. In addition to natural resources, social
and economic resources are also required.
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Standard Economics vs Happiness Economics
Standard economics relies on measurements of income and consumption to
demonstrate the immeasurable concept of utility, whereas happiness economics
uses tools like surveys and questionnaires to get people to directly reveal their
level of satisfaction.
Standard economics relies on the concept of utility, the enjoyment that people get
from the satisfaction of wants and needs. However, the experience of joy or
discomfort cannot be directly measured. Therefore, economists use observable
factors like market prices to indicate how much utility people experience from
various economic goods or services. The principle is that the amount of money that
people are willing to pay for various goods and services is a reflection of the
amount of utility they expect to receive from them.
Happiness economics goes beyond this traditional approach by trying to measure
utility in a more direct way. Since traditional utility theory relies on market prices,
quantities and incomes, it does not take into consideration the enjoyment that
people receive from goods and services that are outside the purview of markets.
Importance of Happiness Economics
Happiness economics has the potential to address both present needs and future
engagements, to build a better economic system, and a happier society. This
concept relies on the notion of utility and welfare approach, which includes the
interdependent utility function as well as the role of non income variables that
affect an individual's wellbeing (Graham, 2005).
The study of Happiness Economics is of particular interest to policy makers,
academics, corporates and citizens of a country. However, using these measures in
policy and decision-making requires a solid understanding of its premises and
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challenges. Several countries like France, Great Britain and even China now
collect measures of subjective well being beyond GDP for making policy
decisions. Bhutan is a pioneer in this and the object of its government policy is to
maximise National Index of Happiness and not just to raise Gross National
Product.
Happiness Economics Indices
Happiness Index is a subjective index based on qualitative data with respect to
wellbeing and sustainability that could be quantified and assigned a value which
could further rank economies of the world. It is the one instrument that is used to
measure both satisfaction and conditions of life. It could also be used to measure
other aspects like:
● Income inequality
● Trust in government
● Sense of community
● Other aspects of wellbeing which are demographic specific
It is a comprehensive survey instrument that assesses the following:
● Happiness
● Wellbeing
● Aspects of sustainability
● Resilience
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This report is a publication of the UN sustainable development solutions network
and it draws on global survey data from people in more than 150 countries. The
report says, “that the objective of every institution should be to contribute what it
can to human wellbeing.” This includes accounting for future generations and
preserving basic human rights.
This Index introduces and explains what is meant by individual and community
wellbeing. It measures and illustrates where individuals and communities are
vulnerable, that is poverty, hunger, lack of education, a poor environment etc.
The UN sustainable development goals (SDG) provide a framework of goals,
targets, and indicators, designed to guide national implementation of sustainable
development by 2030.
The key components of sustainable happiness are:
● Happiness visioning
● Public participation
● Happiness profit inventory
● Systems planning
● Sustainability interventions
Figure 2: Image of the UN Sustainable Goals
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Source: un.org
2.Definition and measurement of Happiness Index
The World Happiness Report has used the same survey methodology since the
publication of its first report in 2012. The participants are asked a series of main
life evaluation questions. They are required to think of a ladder with the best and
worst possible life for them being a 10 and 0 respectively. This is known as Cantril
Ladder.
The Happiness Score is derived by adding different attributes - Economy (GDP
per capita), Family, Health (Life Expectancy), Freedom, Generosity, Trust
(Government Corruption) and Dystopia Residual.
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The answers on the six variables: GDP per capita, social support, life expectancy,
freedom, generosity and corruption and the estimates of their respective weights is
used to derive the happiness score of countries. Dystopia is a hypothetical country
with the world’s least happy people. It is the benchmark against which all countries
can be favourably compared in terms of the six key variables. The residuals or
unexplained components differ from country to country. They have an average
value of approximately zero over the whole set of countries.
Happiness Economics is a field of Economics that recognises happiness and
wellbeing as important measures along with typically used measures like
employment, education, healthcare, GDP(Gross Domestic Product), Per Capita
Income etc. It specifies how any increase in measures which signify growth
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impacts the wellbeing of individuals. This is an expanding field which takes into
account the various disciplines of social sciences. The Nobel Laureate Amartya
Sen brought ‘welfare economics’ into the forefront, which led to an increase in
quantitative research processes, bringing out associations between happiness and
other variables. Earlier, the index of measuring increasing satisfaction was only
limited to economic concepts, but the moment welfare has become an important
indicator, so also have various analyses on measurement of happiness. Some of the
major research themes that have developed in this area are:
1. Paradox of happiness research in economics
2. Happiness economics: Bringing back Ordinalism
3. Beyond GDP: Sustainability and subjective wellbeing
4. Policies to achieve welfare and happiness economy
5. Happiness management and organisational culture to improve productivity
Happiness and wellbeing are essential outcome measures, alongside criteria like
income, work life balance, education, and health. Easterlin worked on the levels of
happiness in the United States from 1946. He concluded that there was an increase
in happiness till 1967 and a decline thereafter, till the 1970’s and very little change
over the next 24 years.(Easterlin, 1974)
There has been a growing pursuit of increasing GDP, resulting in neglecting the
negative repercussions such as environmental change and economic disparity.
(Fleurbaey, 2009; Hayden and Wilson, 2016) have questioned using GDP as the
universal indicator of progress and wellbeing since it only measures monetary
indicators, resulting in the United Nations Sustainable Development Growth taking
initiatives in this direction. These goals go far beyond GDP, delving into
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elimination of hunger, reduction of inequality, good health and wellbeing for its
citizens, urgent action on climate change, and restoring marine and terrestrial
ecosystems.
Bhutan was the first country to take a step towards a proposed indicator of
wellbeing, called the Gross National Happiness (GNH). A lot of work has been
done on individual aspects of happiness, for example, subjective well being,
psychology, health, but none of the research has focused on all these areas together
in the format of Happiness Index.
In Bhutan, the GNH is more important than GDP, implying that sustainable
development should take a holistic approach towards notions of progress, giving
equal importance to non economic aspects of wellbeing and happiness. Bhutan, as
a nation has been governed by GNH and this policy measure has captured the
imagination of other countries in the world. They sought to create a measurement
tool that would be useful for policy makers and at the same time create policy
incentives for the government, NGO’s, and businesses in Butan, with the aim to
increase wellbeing and happiness of society at large.
This index is a mix of traditional areas, of developmental measures like living
standards like health and education, but along with this, there are newer measures
of society wellbeing, like community vitality and psychological wellbeing. Bhutan
uses a holistic measurement of general wellbeing.
3. Difference between other indices and happiness index
The structure of the GNH index contains nine constituents:
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● Psychological wellbeing
● Health
● Time use and balance
● Education
● Cultural diversity and resilience
● Good governance
● Community vitality
● Ecological diversity and resilience
● Living standards
Amongst the nine domains, there are 33 GNH conditions expressed as indicators.
The indicators and domains aim to emphasise different aspects of wellbeing and
human growth. They also look at different ways of meeting underlying human
needs.
Figure3: The nine constituents and their aspects of GNH
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Source: Gross National Happiness, 2023
This comprehensive index measures the assessment of a country's progress as a
nation, it also indicates whether each individual has attained sufficiency in each of
these conditions. A person is classified as happy if he/she attains at least 66% of
the 33 weighted indicators or domains. This index combines the share of a person
who is happy and of a person who is not. The index is valued from 0 to 1, with
values close to 0 indicating low GNH and 1 being a perfect score.
The nine domains have got equal weight, as each domain is considered equally
important as an component of GNH. The 33 indicators are also statistically
reliable, normatively important, and easily understood by large audiences. Within
each domain, there are close to two to four indicators that are informative across
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time, they have high response rate and were relatively uncorrelated. Within each
domain, there are three types of indicators:
● Objective Indicators (were given the highest weights)
● Subjective Indicators (were assigned low weights)
● Self reported Indicators (were assigned low weights)
Bhutan, while constructing this index, used a robust multidimensional
methodology known as the Alkire-Foster method of multidimensional
measurement.The Alkire- Foster is a flexible technique for measuring poverty
and/or well-being, incorporating different dimensions to create measures adapted
to specific contexts. These dimensions may be education, for example a person
with fewer than five years of education is considered deprived. According to this
method, simultaneous deprivations can be measured of a person or household
through different indicators of poverty. This methodology goes beyond the simple
head count ratio, as it reflects both the incidents of poverty as well as the intensity
of poverty. It is also known as adjusted head count ratio (Mo)
M1 (Adjusted Poverty Gap) reflects the incidence, intensity, and depth of
poverty.The depth of poverty is the average gap between the level of deprivation
poor people excperience and the poverty cutoff line.
M2(Adjusted Squared Poverty Gap) reflects the incidence, intensity, and depth of
poverty, as well as the inequality among the poor. The AF method is unique in the
sense that by measuring intensity, it can distinguish between a group of poor
people who suffer two deprivations on an average, and a group of poor people who
suffer five deprivations on an average at the same time.
This method is commonly used for creating national, regional, or international
measures of poverty by incorporating dimensions and indicators that are tailored to
specific contexts. It is also used for monitoring and evaluating the effectiveness of
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poverty programs. Besides the above, it decomposes the population group into
various subgroups, which type of deprivation is contributing to poverty within
groups. The method measures changes in poverty over time and is also compatible
with other measures of income poverty.
In Bhutan, on the usage of the GNH index, four groups of people have been
identified; unhappy,narrowly happy, extensively happy, deeply happy.This index
also captures the rate of improvement across happy and not yet happy people.
The extremely positive usage of this index is that the incidence and intensity are
decomposable. It is possible to show the composition of GNH among men and
women or district indicating the group that is lacking in education.
The results of the 2022 GNH index showed an increase, showed a significant
improvement in the overall well-being growth and happiness in the overall
Bhutanese people. The ones that come under the happy people category correspond
to the groups who are identified as extensively and deeply happy.The number of
people who were happy increased over time.
According to the 2022 index, 48.1% of those aged above 15 were classified as
happy. The 51.9% which were not yet happy were presumed to lack some cause
and condition for not being so. It is important to identify the not yet happy group
and frame policy measures thay could accelerate the GNH. The index also helps in
identifying and prioritising indicators that are lacking behind and adopt the
required policy decisions.Bhutan managed to track and monitor the process of
GNH as well as align and plan policy program and projects with GNH. The five
year plans of the country incorporated the GNH indicators. This index eventually
will also incorporate a resource allocation formula that is presently at a nascent
stage but has the potential to transform the way resources are distributed in Bhutan.
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Figure 4: Analysis of Bhutan’s Happiness Index from 2010 to 2022
Source: Nation Thailand
5. India’s ranking in the happiness index: reasons and corrections
India ranked 139 out of 149 countries in the world in the annual World Happiness
Report of 2021.Nepal, Pakistan, Bangladesh and Sri Lanka are ahead of India.
Some of the parameters that are used are GDP per person, social support, personal
freedom, levels of corruption, healthy life expectancy, and opinions of residents.
India has been slipping in this index that UN has been releasing, in spite of the fact
that the country’s GDP is growing.
This index result indicates that the correlation between happiness and wealth is
weak and that there has been growing inequality. With the rich spending their
money ostentatiously, the ordinary people seeing this are unhappy.
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The country’s chronic unhappiness is due to a number of factors:
● Rapid urbanisation
● Congestion in the cities
● Concern about food security and safe drinking water
● Rising cost of healthcare
● Women’s safety
● Environmental pollution
All of the above have lead to an increase in negative emotion. India has one
of the highest reported suicide cases, reasons being the sense of helplessness
and insecurity about the future as well as the high costs of treatment.
Countries that are high on the index, like Finland and Bhutan, have invested
in an education system that gives adequate ability to its people to find well
paying jobs. In 2023, India ranked 126th in the World Happiness Index,
making it one of the least joyful nations globally. This decline has ben
attributed to the growing mental health crisis
Which may be the result of the effect of the Covid-19 pandemic. Data from
Pharmarack has indicated an increase in the sale of antidepressants and
mood stabilia=er medicines. This source has reported a 41% surge, moving
from ₹1382 crore in August 2019 to ₹1955 crore in August 2023. Gujarat
exhibited a 35% rise in sales during the same period. Since the pandemic,
depression has become a significant global mental health concern, and India
is no exception. The age group of 20 to 45 years has seen a sharp increase.
If we look at some of the factors which are part of the Happiness Index, for
example, education, health, employment, income, environmental conditions,
security conditions, leisure time, social relations with the environment, home
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ownerships and assets, and family harmony, research indicates that India is
lacking in all spheres.
The year 2020 is one of unprecedented humanitarian crisis in the form of
Covid-9 pandemic, resulting in a strict lockdown. For India, this was
manifested in the migrant crisis which led to loss of livelihood and
consequent decline in income.Due to the stringency of the lockdown, there
was a sharp decline in income in april 2020, of 19% and 41% in rural and
urban india, leading to an unemployment rate of 24%. The recovery since
then has been very patchy. This means that income is definitely a factor in
the Happiness index, and earning income means that an individual is
employed. The main problem in India is that 90% of the workers are in the
informal sector. That means that they are deprived of social security. If they
do not have income security, it is definitely going to be detrimental to their
wellbeing.
Estimating a country’s happiness provides valuable insights into the
wellbeing of its citizens. It helps government policy makers and
organisations understand the factors that contribute to people’s contentment
and identify areas that may need improvement.These rankings can influence
the allocation of resources and the development of policies that promote the
overall quality of life. It also offers a broader perspective on a nation’s
success moving beyond economic indicators as it considers the social and
emotional aspects of its population. India’s drop in happiness levels may be
closely linked to its mental health crisis as has been indicated above which
was accelerated due to Covid-19 situation. There are some variables like
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unemployment and inequality that are excluded in the index due to the
unavailability of comparable data across all countries.
The analysis are reports from various fields including economics,
psychology, survey analysis and national statistics that discuss how
wellbeing measurements can effectively gauge a nation’s progress. Besides
this, happiness related issues such as mental health, the tangible benefits of
happiness, the role of ethics, policy implications and connections to the
Organisation for Economic Cooperation and Development (OECD)
approach to measuring subjective wellbeing as well as other national and
international initiaves.
5.1 Reasons for the Happiness of Countries
1. Strong Social Support : The happiest countries in the world have a
strong social support system which includes healthcare, education and
unemployment benefits. These are akin to a safety net that ensures
that the citizens can face life’s challenges with confidence. This is a
factor that India has to work earnestly upon. It has made strides
through the Right to Education Act that has ensured an increased
enrolment but this has not necessarily been translated into the children
staying in the school till the end. There has to be measures that have
to be put in place to reduce the dropout rate. Similar situations are
with health and unemployment benefits. Government should ensure
that marginalised sections of society should have adequate health
insurance and some type of minimum income. The Indian
Government with the use of MNREGA has at least ensured minimum
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guaranteed days of employment at a minimum wage rate. More can be
done to ensure a safety net for the citizens.
2. Freedom and trust- high levels of freedom and trust in government
contribute to a sense of security and wellbeing. this essentially
translates to freedom of speech, freedom to criticize any initiatives
and policy measures of the government, without fear of being booked
under various ‘sedition laws’.The Indian Government needs to take
cognisance of the sense of fear of being arrested in case they speak
against initiatives attempted by the goverment. Policy makers need to
be judicious in recognising whether such statements or acts are
detrimental to the security of the nation or whether they are healthy
critical discussions on various issues.
3. Work life balance- Most of the happiest countries in the world
prioritise work life balance, with shorter work weeks, longer paid
vacations, and family friendly policies.These are possible for
developed economies, but seem far fetched for developing countries.
Developing countries like India thus need to concentrate on a ‘trickle
down’ growth impact to achieve its requirement of high GDP growth.
If the present growth process is leading to greater inequality and
unhappiness, then an attempt has to be made for a ‘bottom up’
approach.
4. Connection to nature- Access to beautiful natural landscapes and
outdoor activities plays an important role in the overall happiness of
the population.This has become essential, especially under the
concerted efforts of all the economies of the world in addressing
climate change.
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5. Equality- Low levels of income inequality and a high level of social
equality all move in the direction of graeter amount of happiness. In
India, the government has made serious efforts to uplift the status of
the marginalised population(SC, ST, OBC, women, muslims, and
other minority religions).
Sanke Index
Bibliography:
1. Happiness Economics; David Blanchflower (nber 2008)(
2. India cites:Happiness Report 2020;Rajesh K Pilania
3. Happiness policy and e
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