The happiness of vietnamese, micro analysis of happiness determinants in the case of binh dinh province

AbstractAlthough economic growth is higher in many countries, these nations still haveno increase or even suffering a depression in average national happiness.. Keywords: Subject well-be

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

VIETNAM – NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE HAPPINESS OF VIETNAMESE: MICRO-ANALYSIS

OF HAPPINESS DETERMINANTS IN THE CASE OF

BINH DINH PROVINCE

A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT

ECONOMICS

By

HO DAI NGHIA

Academic Supervisor:

Dr TRAN ANH TUAN

HO CHI MINH CITY, AUGUST 2013

During the time of studying in Vietnam – Netherlands programme for Master of Arts in Developing Economics, I have learned so much helpful knowledge Therefore, I would like to thank to Programme and all the teachers that have taught me in this time.

I would like to express the deepest appreciation to my research supervisors, Dr Anh Tuan, for his patient guidance, industrious encouragement and fruitful critiques of this research work Besides

my supervisor, I want to acknowledge the tremendous support that I received from Dr Pham Khanh Nam and Prof Dr Nguyen Trong Hoai for giving me constructive comments and warm encouragement.

I would like to offer my special thanks to many friends at People's Committee of Binh Dinh for your assistance and helpful advice with the eye glance data reduction process Without your guidance and persistent help this thesis would not have been possible I am particularly grateful for the assistance given by the officer of my university’s library for his help in offering me the resources in researching and performing the program.

Lastly, the most special thanks go to my best partner and friend, my father, for his help in collecting the data analysis and other helpful things My gratitude also goes to my mother She gave me your unconditional support through all this long process.

AbstractAlthough economic growth is higher in many countries, these nations still have

no increase or even suffering a depression in average national happiness This study has carefully examined the determinants of happiness or subject well- being from literature These determinants are divided into three main categories: economic determinants, personal and demographic determinants and, finally, social determinants In addition to, some recent evidence reveal that happiness also has the adverse significant effect on these factors and economic growth only has restricted effects on happiness level of particular nations In specific case, based on 300 observations and ONS approach, this research paper desires to estimate the magnitude of determinants of happiness in Binh Dinh province at individual level The results reveal that the mental, physical health, local facilities satisfaction and household income have strong effects on individual’s happiness level with high statistical significance Furthermore, the size of coefficients other several variables, including being a female, having partner, high qualification, owned-house status, being employed or living in city

is small and ambiguous It means that they have weak relationships with the happiness level Specifically, two variables of age and be employed, have opposed sign as literature.

Keywords: Subject well-being, Happiness, Economic Growth, Life Satisfaction, Determinants, Binh Dinh Province.

Table of Contents

Acknowledgements ii

Abstract iii

List of Tables vi

List of Figures vii

Abbreviations viii

Introduction 1

Chapter One: Literature Review 5

1.1 Happiness notation 5

1.1.1 Well-being concept 5

1.1.2 Object and subject well-being 6

1.1.3 Three dimensions theory 7

1.1.4 Conceptual framework 10

1.2 Determinants of Happiness 11

1.2.1 Happiness and Income 11

1.2.2 Happiness and Unemployment 19

1.2.3 Happiness and Inequality 23

1.2.4 Happiness and Demographic Determinants 24

1.2.5 Happiness and Social Determinants 31

Chapter two: Socio-economic Overview of Binh Dinh province ….33

2.1 Overview of Economics factors 33

2.2 Contribution to happiness at glance 34

2.3 Some remained obstructions 37

Chapter Three: Methodology and Data 39

3.1 Data 42

3.1.1 Data description 42

3.1.2 The questionnaire design- ONS approach 42

3.2 Methodology 46

3.2.1 Model specification 46

3.2.2 The research detail function 44

3.2.3 Hypothesis statement 49

3.2.4 The description of variables use in this research 49

Chapter 4: Analysis result 53

4.1 The empirical analysis 53

4.1.1 Multicolinearity test 53

4.1.2 Heteroscedasticity test 53

4.2 Analysis result 53

4.3 Analysis examination 55

4.3 1 Demographics determinants 55

4.2.2 Education and health determinants 56

4.2.3 Economic and work determinants 58

4.2.4 Social life and community relationships determinants 59

Chapter 5: Conclusion and ruture research directions 62

5.1 Conclusion and Recommendation 62

5.2 Limitation and future research directions 65

APPENDICE 53

Reference 73

List of Tables

Table 1-The description of variables use in the thesis

Table 2 - Literature findings on determinants affecting happiness level

Table 3- Breusch-Pagan-Godfrey test result

Table 4- WLS and OLS analysis result

Table 5- Coefficients sign comparison

List of Figures

Figure 1- Three dimensions of well-being

Figure 2- Conceptual framework

Figure 3- GDP per capita and happiness across

regions Figure 4- Happiness and Income in

USA Figure 5- Happiness and Income in Japan

Figure 6- Happiness and Income per Capita across Countries

Figure 7- Labor market status and Average subjective well-being ratings Figure 8- Unemployment status and Average subjective well-being ratings

Figure 9- Marriage status and Average life satisfaction ratings Figure 10- Average life satisfaction ratings of the number of children between different gender respondents.

Figure 11- Average Happiness and Age through a life cycle

Figure 12- Gender and Average subjective well-being ratings

APS: Annual Population Survey

ATUS: Annual Time-Use Survey

BHPS: British Household Panel Survey

BSPS: British Society for the Philosophy of Science

DEFRA: Department for Environment, Food and Rural Affairs DHS: Dutch Household Survey

ECHP: European Community Household Panel

EMA: Ecological Momentary Assessment

ESM: Experience Sampling Method

ESS: European Social Survey

ERD: Responsible Development Environment

FSU: Former Soviet Union

GDP: Gross Domestic Product

GNH: General National Happiness

GNP: Gross National Product

GSS: General Social Survey

HIV/AIDS: Human Immunodeficiency Virus/ Acquired Immune Deficiency Syndrome

Hukou: Household Registration Identity

IHS: Institute of Human Studies

NEF: New Economic Foundation

NEW: Net Economic Benefits

ONS: Office for National Statistics

PANAS: Positive and Negative Affect Scale

UK: United Kingdom

SWB: Subject well-being

WVS: World Values Survey

WEF World Economic Forum

In recent years, a European debt crisis as well as the global economic crisis has set for us the question: Whether the targets which countries following are appropriate? And was it time the world needs a new goal?The world economy has long been using the concept of Gross Domestic Product (GDP) is the standard to evaluate the prosperity of a country This standard often does not include the costs to achieve progress society and the environment While the rest of the world is playing with the global recession storm, there is a small Buddhist nation that situate on the top of steep Himalayan snow for thousand years and that has boldly claimed to have found the solution for the question the true happiness in where and the objective a nation should pursue? Bhutan Government initiates to uses the standard "General National Happiness" (GNH) with GDP as the standard to evaluate the prosperity of each country The nations of the world should probably learn to imitate wings of Bhutan to evaluate the effectiveness of the policy agenda on the basis that it brings happiness to the people rather than the economic growth figures for insensitivity Gross National Happiness value (Gross National Happiness - GNH) was born from the ideas of former King of Bhutan, Sir Wangchuck (Alejandro, 2009), is applied from the 1970s

to replace the concept of Gross national product (GNP) He did not hesitate to say

"no" before the globalization efforts of the West with his famous phrase: "The total national happiness (GNH) is more important than gross national product (GDP)" As a small country in the Himalayas with about 708,427 people and is one

of the poorest countries However, based on GNH, Bhutan's GNH probably is the top in the world Kinley Dorji (1972), secretary of contact information for Bhutan:

"Just look at the indicators of economic growth will lead to where they know," he said, referring to the economic downturn worldwide "The

industrialized countries must have realized now that GNP is a broken promise alone.

In addition to Bhutan, this criterion has much more paid national attention in some other countries Costa Rica strongly supports to the "responsible development environment” (ERD), while the United Kingdom proposed for "welfare state" In contrary, as the Bhutan’s neighbor- China is a notable opposite.

After two decades of economic growth in an extraordinary way, the Chinese are not significantly happier than ever before, according to a study evaluating the level of happiness and national income in the economy's fastest growing world Looking at the overview, the rich in China is little happier than before, but those with the average income level the degree of happiness does not seem to change anything As for the poor, the satisfaction level of life seems to drop significantly These trends are not grounds for criticizing the capitalist economy, or economic growth - but they were somewhat suggests that the conventional economic criteria are not strong sufficient enough to measure happiness evaluation Easterlin (1974), an economist from the University of Southern California, became famous after his paper published in 1974 which confirms that money can help people happier, but only to a certain extent After you satisfy certain basic needs, the degree of satisfaction with life will increase with decreasing income Known as Easterlin paradox, this issue is a compelling illustration for the application of scientific methods to solve the question of sociology and economics.

Binh Dinh province is similar to the most of other locations of Vietnam It usually uses GDP or GNP as the ultimate target to pursuit Moreover, as tracking this goal, Binh Dinh could devote numerous valuable things and can be easily involved into World economy crisis For instance, when the World economic crisis in 2007 blooms, the Binh Dinh province economy has suffered a severe consequence with the significant decrease in the economic growth rate, substantially contracting in Bank credit ability, negative effects on import- export activities… (Annual

economic report of People's Committee of Binh Dinh Province, 2008) This consequence, straightforward state, is strongly correlated with flaws in the GDP indicator as an appropriate measure of human’s well-being.

This research going to provide some guides for future choices of policy-makers to help them performing the best policies in order to improving society’s well-being

in general Moreover, it also introduces a new perception of “progression” and helps us do not fall into the “economic development trap” like China are suffering The major objective of this study is to investigate the happiness from the knowledge which pieced out from the newest achievement of literature, the common determinants and the suitable measure of happiness as well as reveals the result as estimate determinants of happiness in Binh Dinh province.

This study tries to answer the main questions:

What are the determinants of happiness in Binh Dinh Province?

The research presents reviews of economic theories that directly relate to the research topics then make clear two problems:

+ What are determinants of happiness and the relationship between economic growth and happiness?

+ What is the suitable approach to evaluate happiness and limitation on the use of happiness indicators?

Finally, this study also assesses some relevant determinants affecting to happiness then answer the main question In this research, the expectation of these determinants has significant effect

to the certain level of happiness of Binh Dinh province.

This paper outline consists of five chapters; after introduction is literature review section generally, the next is to review the happiness, subjects of well-being concepts and determinants of happiness Third section exhibits sources of data and

methodology using in paper The next section reveals empirical result and carries out explanation on this result As a conclusion, final section comments upon the result then give important implication on practice.

Chapter One

Literature Review

The concept of subject well-being or happiness is a social science notation It

is receiving much more attention today, both in policy-oriented analysis and academic research before making any potential research on this field to meet the study purposes it is critical to clarify some ideas about them This chapter presents literature review, at first, it explores what is subject well-being or happiness, then, figures out which determinants could affect to individual’s happiness level and how they are significant Finally, in this chapter, it also introduces some appropriate measures of these variables.

1.1 Happiness notation

1.1.1 Well-being concept

The first concept relating to happiness is well-being While intuitively attractions, the notation of well-being is especially difficult to define clearly In general, well- being comes from being attached, put on and trapped in a net of interests and relationships giving means to our lives The familiarity, belongings and supports provided by close personal relationships seem to be the most important and isolation imposes the highest bothersome (Eckersley, 2004) In another study presenting to give a formulation of well-being definition, Nic Marks’ study (2007) has conceptualized well-being into a famous statement: ‘Doing well - feeling good’ and “doing good - feeling well” It is a likely famous formulation for well-being which obtaining the dual aspect of well-being noted above.

‘Doing-well’ expresses the material or the objective dimension of one’s welfare or standard of living, suggesting economic prosperity groundwork In another side,

‘feeling-good’ phrase reveals the ‘subjective dimension’ of personal perceptions and this is called as one’s happiness level or satisfaction The next term, ‘doing

good-feeling well’, exposes the evidence for this paper’s claims which are specially found in developing countries This is obviously that the moral dimension frequently includes a religious expression or beliefs, cultural and social characteristics were also extremely important to human life Hence, well- being is not just about ‘the good life,’ but about ‘living a good life.’ This concept want to concern not just individual preferences, but the core values is deeper, showing understanding of how the world is and should be Nonetheless, it also goes beyond this notation when again affirm the importance of moral sense about feeling at ease with one’s place in the world – which is critically associated with how one is in relationship to others (White, 2008).

1.1.2 Object and subject well-being

According to Conceição and Bandura, (2008), well-being concept could be divided into two different approaches: subjective and objective approaches In the first approach, well-being is measured through certain observable evidence such as social, economic and environmental statistics or indices in which one’s well-being

is valuated indirectly by using cardinal measures In other aspect, objective being relies mostly on assumptions about human needs and rights Traditionally, well-being often has been measured with a single objective dimension: material well-being measured by income, income per capita GDP, GNP or so on It then reconciles and uses multidimensional well-being measures such as constructing objective measures to complement GDP, for example, doing addition environmental and social calculations beyond the economic stance (Sumner, 2006; McGillivray, 2007) or monetizing different demeanors that are not computed

well-in the GDP measurement, such as, environmental and social aspects (McGillivray, 2007) The objective approach, however, has many limitations For instance, the approach requires researchers must decide which indicators are most important for assessing and monitoring the well-being of a national level prior to any judgment can be introduced.

In the other hand, subjective measures of well-being capture people’s real experiences or feelings in the most direct way, of estimating well-being through ordinal measures Comparing to the objective approach, the subjective well-being (SWB) has the advantage that it can avoid the need for a priori assumptions about what constitutes a good life and also overcome the aspect of paternalism (assumptions about what adds and detracts from individuals well-being) (Waldron, 2010) This is due to the fact that it asks individuals about their views on their own well-being and allows them to make their own assessment

of their well-being.

1.1.3 Three dimensions theory

White gives another approach to measuring well-being The paper claimed that:” A category of ‘objective’ is hard to justify if the concept of well-being is

to be person-centered, since all persons, including officials and academics, see and speak from a particular place, none has an un-biased, universal vision”(2008, p.17) Moreover, understandings of well-being are mainly constructed in particular social and cultural framework It means there is no

‘pure objective’ could be existed outside of a certain society or culture, which can be declared separately to people’s ‘subjective’ This idea does not mean to eliminate the importance of the material or physical effects Standard of living and material welfare are clearly critical elements to any notion of well-being and the material and intangible; need to be aware as intrinsically intertwined Sen (1991) has supported the view that happiness as an important thing of people life but there are various aspects of life that should come first because

of their important, such as justice, rights, security and freedom.

According to WeD (2008) approach, White has introduced “three

dimensions of well-being” model.

Figure 1- Three dimensions of well-being

Source: White S.C., (2008): But what is well-being? A framework for analysis in social and development policy and practice WeD working (p) 17.

The image of the triangle exhibits some remarkable characteristics of the relationship between three components of well-being At first, this image reveals that three elements have certain relationship and interdependence of the various elements, without existence of others none could exist The second, the

“subjective” dimension position in this figure purposely exhibits that the

“subject” firstly is forming on a socially and culturally ground dimensions of being In practice, however, the relative importance of these dimensions will change over time depending on the context of discussion and the priorities of the readers concerned After all, a critical thing regarding this figure is that the three dimensions of well-being identified here likely have interaction with other more than established discussions and in some case they are almost similar.

well-With each concept, the explanation could be simply perceptible At first, the material dimensions of well-being mention real objects which directly construct

‘capabilities’ or ‘human capital’ such as health and education, with others identified as material, natural, physical, financial capital and assets Alongside matters that people could own or have called ‘common property resources’, there are some items that the people can use for building their ‘capabilities’ but they must share with other such as the physical and natural environment In other

aspect, the relational dimensions of well-being consist of intimate relations such as the couple love and the caring from relatives They also are influenced by the classic ‘social capital’ components of social organizations such as labor-union, women-union, trade-union… as well as interactions with local governors and their services, for example, policies, the law, national or local politics, social security and welfare services.Finally, the subjective dimensions of well-being concern what people conceive and value to be good, how they feel about their lives and the desires they confirm and pursuit for their whole life This dimension is the most ingredients composing individual happiness However, it still relatively depends on previous dimensions As Prinz and Bünger (2012) commented that people, first of all, must meet their basic needs, whatever less time is necessary to meet basic needs, their time constraints may be reduced It means that people becoming more productive, and this implies that they also become richer than before Thus, more time can be devoted to achieving happiness and increasing welfare.

In reality, SWB, life satisfaction and happiness can used interchangeably but in psychology, the concept of happiness is narrower than SWB and far different from life satisfaction According to psychologists, both life satisfaction and happiness are components of SWB; they still have slight difference between two notions The life satisfaction expresses one’s received distance from their expectations while happiness concept comes from how an individual equilibrate between the negative affect and positive.

In this context, SWB seem to be similar to “being happy”, in a contrary, concepts such as “satisfaction” and “happiness” are considered “feeling happy” Despite economists have interchangeably used the terms “happiness” and “life satisfaction” for a long time as measuring of subjective well-being (Easterlin, 2004), there is still no obvious agreement on what “happiness” really refer to In

practice, however, we can use SWB data to measure happiness or life

satisfaction due to the similar meaning in measuring these indicators.

1.1.4 Conceptual framework

From the literature review and purpose of this study, a conceptual framework

can be drawn as diagram below (Figure 2) This figure mainly describes the

relationship among three groups of factors (material, demography and social

determinants) to happiness or SWB as a three-dimension approach.

Material Income

Employment

Happiness or SWB

Gender

Figure 2- Conceptual Framework

Source: Author’ synthesis

1.2 Determinants of Happiness

1.2.1 Income and happiness

What is the relationship between economic growth and happiness then improvement in personal income? Economic growth related to the increase in real national income per capita, meaning that the value of services and goods manufactured per capita in an economy after inflation adjustment played.

Economic growth is a necessary to improve the living standards of the masses in countries with a low GDP per capita level It is necessary, because without growth, the individual can only be better off through the transfer of income and assets from others In a poor country, even if a fraction of the population is very rich, the potential for redistribution of such type is very limited.

1.2.1.1 The relationship between happiness and income

It has given robust evidence that GDP is an appropriate indicator reflecting the happiness level of nations The relationship between economic growth and happiness is most critical relationship which many economists are interested

in studying happiness Whether richer countries can “fell” happier than poorer ones? This relationship is early introduced in neoclassical theory Under traditional utility function framework, neoclassical economists assumed that with more choices or more consumption people can maximize their utility and then get higher happiness Nevertheless, many overviews of the empirical and theoretical literature on income and happiness in most recent studies exhibit more complex range of observed behaviors.

Numerous investigations deal with the relationship between economic variables and happiness The general findings also set out some evidence on strongly relationship between GDP and happiness of residents in many regions (Figure 3).

Figure 3- GDP per capita and happiness across regions

Soure: Graham C and Pettinato S., 2002 Happiness and Hardship: Opportunity and

Insecurity in New Market Economies There are two basic measurements of national income being often used quite popular The total national product (GNP) is the total value of goods and services ultimately produced

in society in a year GNP does not include intermediate goods which used in the process

of producing other goods, such as engine in automotive or processors in a computer) GNP is output produced by a country's inhabitant, adding the value of goods and services produced by residents living outside the country's borders GNP is one of the most common indicators used in national income accounting Steve and John (1997) and other multilateral organizations often refer this concept as the total national income (GNI).Total domestic product (GDP) is up to the total output produced within the country's borders, including the output produced by residents’ foreigners, but not the output value of citizens living outside the country Get the GNP or GDP divided by the total population is one measure of income that we can illustrate the difference between nations Moreover, GDP is also a measure of total output and total income This statement can be investigate via

‘value added’ notion, ‘value added’ is the increased revenue at a particular stage of production corresponded to the price of this good.

Therefore, the total value added in all steps of production match to total production.

Although, GDP or GNP is the good indicator to assess the nations’ welfare, there are some serious problems which should be concerned (failing in measure untradeable good or

“bad” things or the problems with equivalent exchange rates).

1.2.1.2 Easterlin Paradox or diminishing marginal utility rule of happinessThe first and famous finding which has discovered by Easterlin (1974) showed that the relationship between happiness and income was presented by curvilinear shape and especially less steep at higher income This phenomenon reflexes the diminishing return to increases in individual consumption and that are normally consistent with theoretical utility functions Therefore, in the research, researcher has investigated an apparent evidence of a positive effect of income on happiness

at the individual level This finding is like to the assumptions of standard economic theory regardless to the findings of objective measures of quality of life (Easterlin, 1974) Moreover, by redoing this research on US data and other developed data, Easterlin also reached the same conclusion (Easterlin, 1995; Frey and Stutzer, 2002; Blanchflower and Oswald, 2000) that aggregate national happiness was especially flat in most developed countries over time, the individual happiness level in this case seem keep a lower speech with a sustained increases in GDP per capita in USA (Figure 4).

Figure 4- Happiness and Income in USA

Source: World Database of Happiness, US Department of Commerce, Census Bureau, 2000

This observation is often called as ‘Easterlin Paradox’ and can be stated that a growth of per capita income is not reflected in increasing happiness However, in

a counterpart, the case of Japan is often used in the literature as an opposite story of the whole picture This finding partly counters the hypothesis that a country’s happiness increases as a country go from a developing country to high income country From literature, Japan is an unusual case of a country for which long-term happiness data is available; the data has drawn an interesting picture, Japanese’s GDP per capita was below $3,000 from the late 1950s and rose more than five-fold from 1958 to 1991 without any significant growth in reported happiness level (Easterlin, 1995) (Figure 5).

Figure 5- Happiness and Income in USA in Japan

Source: Easterlin R., 1995 Will Raising the Incomes of All Increase the Happiness of All?

The Easterlin paradox can be clarified by many ways The first, from classical economists’ point of view, these individual benefits model could demonstrate the positive slope found in much of the empirical literature Nevertheless, as performance in the diminishing marginal utility rule, when people consume more with higher income their benefit approaches zero and individual happiness level in developed countries are smoother.

Another explanation was introduced by Mathias Binswanger (2006) about treadmill behind paradox of income He claimed that in developed countries where people try to walk faster and faster in the street to get a higher income then higher consumption and happiness but the fact indicates that the growth seems not to improve their current happiness situation Generally speak, happiness almost unchanged, no matter how fast people are walking on the treadmills The study showed that reported levels of happiness of observations do not rise corresponds with income levels, and people are experiencing unhappiness more and more time This paper presented four treadmills underlying this paradox of happiness There are the positional treadmill, the hedonic treadmill, the time-saving treadmill and

the multi-option treadmill, they are all seem to make a significant denotation to stagnancy of one’s happiness The hedonic treadmill and positional treadmill both describes how people keep happiness from rising along with income by regulating their aspirations in particular status In a different way, the multi-option treadmill explains why people’s happiness does not increase beyond a certain threshold level With more options, they must spend more time and money, and then time for relaxing and enjoying also reduced make people’s happiness go down in line Finally, the time-saving treadmill investigates the fact that time- saving technological progress fails to eliminate time pressure in people’s life There are many economists powerfully supporting this point of view Caporale, Georgellis, Tsitsianis and Yin (2009) reveal robust evidence which mainly assists

a positional treadmill By using cross-sectional data from the European Social Survey (ESS), it explores the relationship between happiness and income, relative income across 19 European countries The result point out a positive, statistically significant relationship between happiness and income does exist, but such a relationship is debilitated by relative income The evidence, in the case of Western European countries, also investigates that while relative income puts forth a negative impact on happiness, however, it gives out a positive effect in the case of the Eastern European countries This finding is consistent with the ‘tunnel effect’ hypothesis The ‘tunnel effect’ say that an increasing income gap between the poor and rich lessens well-being due to social comparisons or if the poor looks for higher income in future due to the fact that inequality rising during rapid growth at the early stages of reforms then inequality becomes politically and socially more acceptable Hence, in both case eliminating income inequality should be paid more attention in policy agenda This suggests that relative income affects their prospect about future economic prospects rather than a criterion measure for social inequality.

Veenhoven (1991) and Inglehart (2000) using cross-country evidence stated that the happiness and income relationship is curvilinear with one important point called ‘threshold’ With all point stays below this point, income per capita has strong relationship with happiness but from then onwards, levels of happiness are very weakly correlated with further expansions in income per capita (Figure 6).

Figure 6- Happiness and Income per Capita across Countries

Source: Inglehart and Klingemann (2000), Globalization and Postmodern Values The Washington Quarterly, 23 (1), p 215-228.

This “threshold” hypothesis states that above a certain level of GDP, income has very weak effect on happiness The position states that income improves happiness only when people are not satisfying their basic human needs (Maslow’s pyramid of needs, 1943) But beyond ‘threshold’, as their basic needs are fulfilled, income does not matter for happiness Inglehart (2000) also added some evidences to prove this idea; it showed that societies must expend a high cost at early stages of development Nevertheless, whenever their basic needs are satisfied, step by step, the components of better quality

of their life will turn into another thing such as higher security, better environment or full house (Clark, Paul and Shields 2007) Hence, under this theory, the relationship between happiness and income is curvilinear.

Moreover, other arguments continuously are exhibited by many economists about this curvilinear relationship Layard, Nickell and Mayraz (2008) have concluded that the marginal utility of income declines a little bit faster than in proportion to the increase in income by estimating the data cover over fifty countries and time periods from 1972 to 2005 In the research, through six different surveys under a number of assumptions, the estimate the elasticity of marginal utility with respect

to income is able to estimate The outcome in each survey as well as subgroups in the population is likely similar with the lowest, highest absolute value and a combined estimate are approximately 1.2, 1.35 and 1.26 correspondently.

In the research of Deaton (2008a, 2008b), he has investigated an interesting discovery when using cross-country data from countries in the Former Soviet Union (FSU) to estimating the relationship between happiness and income The evidence points out that there are many outliers Even though economic conditions have improved in FSU countries (they are in the world's 20 fastest- growing economies between 2000 and 2003), they still report much lower levels of subjective well-being and life satisfaction than poorer countries, such as Nigeria and India, in a same point in time He finds that “low satisfaction ratings from high-growth countries for across the 132 nations studied and income growth is negatively related to life satisfaction” (Deaton 2008a) Finally, in another research (Deaton 2008b) claims that the correlation between income and life satisfaction is very high and remains substantial and positive, even among rich countries.

Another argument was exposed by Stevenson and Wolfers (2008) With more data has become available, more extending multiple datasets such as extended national time series and additional observations from new countries in many years and a broader array of countries, he set his wits to a question of the Easterlin Paradox The study outcome is also associated with earlier findings and it also discovers that the poorer societies are less happy than wealthier societies; it is also true for the case of wealthier and poorer members of a same given country Moreover, the

research’s result also confirms that societies get happier over time

as they become richer However, this conclusion just true for the case of Europe while the case of the U.S remains a puzzle.

In the time series data for a country or individual, the relationship between happiness and income is consistent with state that they have positive significant at low level of income but weak relationship with higher income then express the diminishing rule of happiness.

In general, however, economic growth is necessary but not sufficient to improve the general living standards It would be wrong to assume that per capita GDP higher means more income for everyone, or even for the majority of households, at least three reasons, First, governments promote economic growth not only to promote the welfare of their nation which is sometimes mainly to gain power and glory of the state and the rulers.

Economic growth is included in the expensive project like this; it often brings little benefit to the public Second, resources can be massive investment for further growth, and consumer interests to be delayed one day later Third, income and consumption may increase, but the inherently relatively better off may get all or most benefits 1.2.2 Unemployment and Happiness

Apart from income, many macroeconomic variables such as unemployment and business cycles are also investigated in relationship with happiness through many studies.

On the happiness and unemployment aspect, there are many researches which have used various kinds of data to find out the effect of unemployment to happiness precisely.

Studies have clearly investigated that person who is experiencing unemployment makes them very unhappy for many various countries and time periods Moreover,

unemployment situation of society also causes a negative effect on people, even if they themselves still are working In this case, people may feel unhappy because of the unfortunate kismet of the people who are put out

of work as well as they may worry about their future of being unemployed This conclusion is supported by analysis of the Annual Population Survey (APS) data (ONS, 2011) According to the research, average ratings for the

‘worthwhile’, ‘happy’ and ‘life satisfaction’ questions were clearly higher for employed than for unemployed people, as shown in Figure 7.

Figure 7- Labor market status and Average subjective well-being ratings

Source: Office for National Statistics -Annual Population Survey (APS) (2011)

Dolan et al., (2010) also has been suggested that the effect of unemployment situation is slightly different for two groups: male and female Men seem suffer more negative effect in subjective well-being than on women’s APS data shows that lower average ratings for the

‘worthwhile’, ‘happy’ and ‘life satisfaction’ questions associate with people who endure longer times of unemployment (Figure 8).

Figure 8- Unemployment status and Average subjective well-being ratings

Source: Office for National Statistics -Annual Population Survey (APS) (2011)

Clark (2008), by the same token, using pooled cross-section of two subgroups: British Household Panel Survey (BHPS) and European Community Household Panel (ECHP), has declared that longer duration unemployment is mostly just as bad as shorter duration unemployment with both bivariate and multivariate results.

According to Di Tella and MacCulloch (2006), as investigating the effect of inflation on happiness, has found that higher rate of both unemployment and inflation has caused a deduction in one’s social welfare The primary critique for this issue is that nominal aspects of an economy like inflation should not affect to rational people (Di Tella and MacCulloch, 2006) However, from the latest evidence, this critique likely is eliminated by affirmation that inflation as well as unemployment significantly reduces people’s happiness.

Inflation not only corrodes purchasing power but also creates a negative emotion

of reduced national reputation and people’s confidence (Di Tella and MacCulloch 2008) Spiritual lost caused by unemployment, aside from the monetary loss, is involved with costs such as depression, anxiety, loss of self-reverence (Frey and Stutzer, 2002) Comparing the trade-off between inflation and unemployment in

terms of happiness, the study found that inflation affects happiness less than unemployment, adverting to the “misery index”, which was used frequently in literature, and which has misshaped the real picture.

Di Tella, MacCulloch and Oswald (2001) by using data of citizens from twelve European countries and from the General Social Survey (GSS) of United States, have investigated that a simple linear misery function is not enough to express a true relationship between unemployment, inflation and happiness In this case, a curve may be the best choice The paper exhibits a systematically moving between how happy individuals feel and their country’s level of inflation and unemployment These indexes exhibit how one’s happiness level varies when the national unemployment or inflation rate change 1 percent The authors also presented some interesting calculation to prove that unemployment creates more unhappiness than inflation According to his calculation, a percentage point of inflation creates approximately 1.7 times less unhappiness than a percentage point of unemployment By the same token, Wolfers (2003) also reinforces and enhance this conclusion by using a larger sample than former research and the disagreement is only in magnitude His estimates reveal that the public seems to

be more hostile to unemployment than in former calculation, particularly, the trade-off between unemployment and inflation close to fivefold not just 1.7 times Researching how inflation and unemployment affect happiness can give policymakers a benchmark as giving out some important policies because these policies can affect people in another way in terms of reduced happiness.

Fumio Ohtake (2012) in research about unemployment and happiness based on data collected in Japan has expressed the same view with the others This conclusion suggests that creating jobs rather than redistributing wealth to the unemployed may effectively improve people’s levels of happiness under the budget constraint situation.

In summary, most evidence supports the negative relationship between unemployment, inflation and happiness Disagreement is only reserved on scale of unemployment, inflation on happiness or differences among subgroups on a specific time period.

1.2.3 Inequality and Happiness

In literature, the negative relationship between happiness and inequality seem widely acceptable.

Di Tella et al (2001, 2003) based on numerous answers has found that there is

a large and significant negative effect of inequality on happiness in Europe but not in the U.S The differences in happiness level are significantly observed across groups for inequality Some groups in Europe, the poor might suffer a higher unhappiness temper from inequality Contrariwise, in the United States unhappiness is only observed from the rich Why the contrary could happen for two groups which they seem have the same economic condition? There are many explanations could be adapted, firstly, the reason comes from the

“style” of the society where the individuals are living Americans have been living in a mobile society where individual efforts are strongly encouraged and with their attempt, they may easily improve their social position while Europeans recognized that they are living in rather immobile societies In the next, but less favored than former, the Europeans may be prefer equal societies than the Americans Therefore, it is reasonable to confirm the hypothesis that social mobility status, which people are living, could affects one’s perceived happiness differently though they are in the same group Graham and Pettinato (2002) analyzed subjective well-being in 17 Russia and Latin American countries The research has discovered that relative income differences have important effects on happiness which they can sense This research shows that poorest groups are more likely to receive a satisfactory than those who are living in the middle or lower middle of the income.

However, Shiqing Jiang, Ming Lu and Hiroshi Sato (2012) present a different story relating to impact of income inequality on happiness This study said that people feel unhappy with between-group inequality, as measured by the income gap between urban residents However, the result also suggests that income gap or inequality between urban residents and migrants regardless whether or not they have local hukou, (household registration identity), is positively correlates with happiness The explanation for this vague conclusion could be drawn on experience that the higher inequality the stronger incentive to work and more happiness The contribution of the study to happiness literature is the distinction

of general inequality and between-group inequality on happiness.

1.2.4 Demographic Determinants

Demographic characteristics seem too hard to attract attention of researchers on economics standpoint However, it is the most important source of SWB from the view of psychologists Demographics might be relevant in psychology and influences generally on SWB Therefore, it should be involved in and controlled in regression analysis.

In psychology, ‘point theory’ has stated that each individual has a fixed point of life satisfaction or happiness specified by personality and genetics Some events happening through their life, which have critical effects to one’s life experience such as marriage or divorce, having child or serious injury may temporarily diverse a person above or below the balance status However, according to ‘set-point theory’, each individual will accommodate their temper before new circumstances, and then revert to the starting point The process is called ‘hedonic adaptation’ by psychologists (Easterlin, 2004) In reality, it may be appropriate for the changing in individual income A person can reverse to their set-point of happiness after a ‘completely adaption’ to new circumstances According to Easterlin, however, argues that the hedonic adaption assumption is not completely correct for all circumstances Individual happiness level might be

set-varied forever, in other word; new set-point is constructed with serious life events such as marriage, divorce, and disease or serious disability 1.2.4.1 Health

There are two arguments on connection between health and happiness According to “set-point” theory, people who suffer a major disease or serious accident may fully recover from such circumstances with the support of up-to-date medications, a good health-care services and, especially, with a promotion from their relatives or friends.

Brickman, Coates and Bulman (1978) repeatedly tried to find in their study an evidence of complete adaptation However, the result still is ambiguous, this study claimed that there are not “expected” differences between the group experiencing serious disabilities with the nondisabled group In another hand, it is not absolutely confirms that have not significant deference in happiness of two groups In the end, this “fully adaption” assumption continue be argued in literature.

Easterlin (2003, 2004) gives conclusion that an adverse change in health permanently reduces happiness In his study, he observed that people who were not disabilities significantly report a higher life satisfaction or happiness than those who were The more straightforward conclusion is that the worse the change in health, the greater the deduction in happiness.

Of course, this research does not concern to the time needed for adaption fully performed or refers that no adaptation for disability It seems clear from comprehensive survey evidence that adverse health changes cause a negative effect on happiness but it could not be fully adapted.

Easterlin (2003) also gives an exception on relationships of age, health and happiness When people get older the real health problems increase as people age If adaption is performed completely with the adverse changes in health the self-reported health over the life circle should not be changed The answer, however,

contradict to expectation that self-reported health not declines throughout the life course This findings notice us be careful as applying this theory in the research, the problem with health caused by age may be entirely adapted.

In other side, Deaton (2008b) warned that not using health satisfaction measures

as indicators of well-being in international comparisons His paper reveals that health satisfaction is quite low in the countries of the former Soviet Union and Eastern Europe, which life-expectancy declines remarkable recently In opposite, for countries in Africa, people in those countries do not express the same levels

of dissatisfaction with their health as in the FSU and Eastern Europe though the HIV/AIDS epidemic make a significant declines in their life-expectancy.

Some recent studies add more advantaged information on happiness study by giving a robust evidence of adverse happiness effect on future health According to psychologists, a stability in happiness levels over time lead to an improvement in people’s health both subjectively and objectively positive People in this context might experience a cognitive bias such as optimism, self-esteem, and control In the Russian context, Graham, Eggers and Sukhtankar (2004) also supported for this idea 1.2.4.2 Family Life

Almost studies have agreed on the conclusion that marriage has important impact

on happiness across countries, in this case, is positive impact Married people have reported a higher happiness than separated, divorced, singles or widowed Diener et al (2000) reveals the relationship between marital status and SWB be very similar across 42 countries, regarding all cultural aspects Blanchflower and Oswald (2000) monetized a lasting marriage is worth one thousand dollar per annum comparing to those has widowed or separated Heliwell (2003) also support this view that married people have higher levels of happiness than unmarried people The APS statistics (ONS, 2011) as comparing life satisfaction among group people has concluded that the married has reported the highest

average levels of life significantly higher than, single and widowed people and the lowest average rating was reported by those who are separated or divorced (Figure 9).

Figure 9- Marriage status and Average life satisfaction ratings

Source: Office for National Statistics -Annual Population Survey (APS) (2011)

Why married people have higher SWB than other ones? According to Frey and Stutzer (2002) explain that marriage improves the spiritual status of involvers as well as give additional material support and partnership.

Easterlin (2005a) further supported this point in a new study with different explanation The results claim that the people who are single, widow or divorce report lower happiness level than married people because they do not fully adapt these circumstances to their life If they adapted to their circumstances fully, a happy marriage would not be desired He also concludes that a remarriage creates a similar happiness as in their first marriage, and persons who remarry still get a significantly greater happiness than their unmarried counterparts even many years later This result, however, contradicts Blanchflower and Oswald finding that second marriages are less happy than the first On the causality aspect, people who do not feel happier in marriage still not likely to divorce (Graham, Eggers and Sukhtankar, 2011)

One special aspect in family life is the quantity of children, for which Easterlin (2005a) investigated the received utility in terms of quantity of children In literature, many economists expect to be able to applying the consumption theory

as well as using demand function in order to estimate demand for children in a This result, however, suggests that growth in desires for either the number or quality of children is seemingly not associated with growth in SWB.

Interestingly, the happiness level reported for people who live in households without children and people who live in households with more than one child was

no significant difference This feeling is the same for both man and woman except the case when their family has more than five children (Figure 10).

Figure 10- Average life satisfaction ratings of the number of children

between different gender respondents

Source: Office for National Statistics -Annual Population Survey (APS) (2011)

1.2.4.3 Age

At the beginning, people likely believe that younger people are happier than elder people due to less mobility, heath or money Moreover, almost recent happiness researches agree on U-shaped of happiness diagram through a life circle (Figure 11).

Figure 11- Average Happiness and Age through a life cycle

Source: Arthur Stone (2010) A Snapshot of the age distribution of psychological being in the United States PNAS paper.

well-Studies based on large sample sizes have revealed that on average, both elder and younger age groups informed a higher happiness and the lower levels of happiness fall to the middle age groups In general, the happiness level increase a bit as people age shift from age of 18 to 37 and fall into a decline thereafter until reach the age of 53 the happiness level rising again (Blanchflower 2008; Blanchflower and Oswald 2007a; Oswald 1997; Helliwell 2003) Sam Waldron (2010) also strongly supported this point of view but the minimum and peaks; the only significant difference between the minimum and peaks in various researches comes from using different SWB scale in various studies.

This pattern in the reported happiness trends come from net effect of various life domains such as their health situation, financial, work status and family life through life circle In most cases, the people who are in midlife have a minor improvement in their happiness level thank to the net effect of growing happiness with one’s work, social relationships and family life…this improvement may compensate deducing happiness with health Afterward, the net effect seem more serious or the happiness level is fall rapidly along with diminishing satisfaction with one’s family situation and work as well as their both mental and physical

health However, with some people, their better financial situation seems enough

to compensate these negative trends caused by their age (Easterlin, 2006).

Figure 12- Gender and Average subjective well-being ratings

Source: Office for National -Statistics Annual Population Survey (APS) (2011)

As the same result, Mookerjee and Beron (2005) give a further comment on gender, and happiness The results reveal that gender has strong impact to individual happiness level The outcome is intensified by some examples of the percentage of women in labor force, parliament, how they are behave in their

company… both of them significantly have important impact on the degree of happiness.

1.2.5 Social Determinants

There is an evidence reveals that how performance of government’s institutions highly related with happiness The extent of economic and political regulations in order to improve personal freedom is positively correlated with happiness level (Frey and Stutzer, 2002) A progress democracy also contributes a higher happiness to people along with achievements in social and natural sciences Moreover, evidence from large Switzerland sample shows that the government decentralization associated with development in the institutions help people happier in these locations (Frey and Stutzer, 2000).

Veenhoven (2003) has tried to find out whether freedom in nations could influence the residents happiness The research reveals that freedom does not always generate the same happiness for all people living in the same society then approximately having the same freedom He proves that freedom is positively correlated to happiness among rich countries but it is meaningless for poor countries In additional, freedom not just is concerned as personal freedom, it is considered as an economic freedom The extension in economic or cross- countries trade freedom has strongly impact to rich nations than poor nations Paolo Verme (2009), in his study, has discovered the people who believe that their life is decided by supper-natural forces, a certain ‘fate’ or ‘destiny’ have a lower freedom perspective than the people who believe that their successes depend on their actions or internal factors such as skill, ability, effort or experience Then happiness is more than for those people with higher freedom in their mind.

Social capital or quality, quantity of institutions variables also are studied in other research studies Helliwell (2003), for instant, has tried to investigate the correlation between these institutions and SWB The research expresses a positive correlation between the degree of subjective well-being and connectedness by