I blogged a few days ago on happiness and the old East Germany where pre-transition conditions show that to increase people’s level of happiness, job security and a strong social welfare system were paramount. Would these policies that increased happiness under socialism work in capitalist countries? The Nordic countries – Norway, Finland, Denmark and Sweden – are widely recognised as typical welfare states and were among the leaders in introducing employment and social safety net legislation. Today their spending on a social safety net as a % of GDP is one of the highest in the world. One of the main reasons for the level of happiness in these countries is the quality of public services – health, education, childcare, pensions and elderly care – and the population know that their public services are good.
But doesn’t a higher income mean greater happiness?
In the mid 1970s Richard Easterlin drew attention to studies that showed that, although successive generations are usually more affluent that their parents or grandparents, people seemed to be no happier with their lives. It is an interesting paradox to study when you are writing about measuring economic welfare and the standard of living.
What is the Easterlin Paradox?
1) Within a society, rich people tend to be much happier than poor people.2) But, rich societies tend not to be happier than poor societies (or not by much).
3) As countries get richer, they do not get happier. Easterlin argued that life satisfaction does rise with average incomes but only up to a point. One of Easterlin’s conclusions was that relative income can weigh heavily on people’s minds.
The most comprehensive study in looking at whether higher income leads to higher levels of satisfaction was published in 2012 and looked at countries over time and concluded that more income leads to greater levels of happiness. However it wasn’t clear as to whether money leads to happiness or happiness leads to money.
How do the Nordic countries pay for these public services?
Taxes in Nordic countries are considerably higher than in countries with less extensive and generous social safety net. The OECD puts the ratio of government tax revenue to GDP for Nordic countries as 53% compared to 45% in the EU and the USA 33%. Nordic countries seem to be willing to pay their fair share of taxes although their incomes are higher than your average OECD country. With the rapid development of technology job security is a concern in most countries but a survey of Swedish workers suggested that they are not worried about losing their jobs due to technological advances. 80% of those surveyed expressed positive views about robots and artificial intelligence. A similar survey of saw 72% American workers negative views about robots and artificial intelligence. The Swedish minister for employment and integration quoted in the New York Times:
“The jobs disappear, and then we train people for new jobs. We won’t protect jobs. But we will protect workers.”
Easterlin argued that life satisfaction does rise with average incomes but only up to a point. For Nordic countries it seems that levels of happiness correlate to an effective social welfare system paid for by high taxes.
Source: An Economist’s Lessons on Happiness. Farewell Dismal Science by Richard A. Easterlin (2021)