Can Rich Countries Increase Life Satisfaction by Increasing GDP per Capita - Essay Example

Life Satisfaction and Income: Can rich countries increase life satisfaction by increasing GDP per capita and State: Date: Introduction A raging debate has been going on for decades now on the relationship between life satisfaction and incomes of individuals (Easterlin, 1995). Some scholars are of the view that an increase in income leads to increased life satisfaction (Deaton, 2008; Clark and Oswald, 1996). Others are of the opinion that there is no correlation between the two, while another group agrees that there is a positive correlation between the two factors, but that the relationship is not linear (Layard, 2005). These scholars that are of the view that there is a positive but non-linear relationship between GDP per capita and individual’s life satisfaction explain that since the relationship is positive, the rich countries can increase life satisfaction by increasing the country’s GDP per capita (McBride, 2001). This paper examines Deaton’s findings in his research in a bid to ascertain whether life satisfaction can be increased through increasing income. To achieve that, the paper will start by explaining life satisfaction, then showing the correlation between life satisfaction and income and, lastly, determining whether rich countries can increase life satisfaction by increasing GDP per capita. Life Satisfaction Life satisfaction is the measure of one’s well being (Deaton, 2008; Levy-Gorboua and Montmarquette, 2007). Hochman and Skopek (2013) define it as one’s general feeling about life, an overall evaluation of one’s life. Life satisfaction is subjective as opposed to objective (Boyce, Brown and Moore, 2010). Due to this, it is not possible to adequately measure one’s life satisfaction because depending on the prevailing circumstances the answers provided by respondents may differ. Deaton, for example, gives an illustration of the two studies that were conducted to gauge life satisfaction among the various countries in the world. The two studies were conducted by World Value Surveys and World Poll Data. The studies had findings that varied greatly. Deaton faulted the study by World Value Surveys because when sampling the poor countries they concentrated on the former USSR countries, and when they sampled African and other Third world countries, they selected respondents that were well off and literate. Deaton argues that the former USSR countries should not have been used as the benchmark for poor countries because they have unique problems that make their citizens greatly dissatisfied with life (Deaton, 2008). He also argued that selecting the well off people in the Third world countries hardly provides reliable representative data because such people have relatively accomplished their goals and their life satisfaction level does not correspond to that of fellow citizens (Deaton, 2008). The differences in these findings show just how subjective life satisfaction can be. Following this discussion, scholars argue that increment in life satisfaction is also subjective, and depending on the level of GDP per capita, may increase at an increasing rate or at a decreasing rate (Nauert, 2013; OECD, 2014). Life satisfaction and Income Scholars have had disagreement on the relationship between life satisfaction and income of individuals (Shields, Price, and Wooden, 2009; Veenhoven, 1991). Anelski (2013) observes that generally, there is a positive correlation between life satisfaction and income. However, a few researchers assert that income and life satisfaction do not relate (Blanchflower and Oswald, 2004). These scholars opine that, instead, family life, religion and age are more impacting on life satisfaction than income (Clark, Frijsters and Shields, 2008). They have not been able to put up a compelling argument for this case. According to Easterlin (1995), the average national satisfaction increases with increase in per capita income but not in the long run. According to this school of thought, life satisfaction is not permanent; it is temporary and transitory (Lakshmanasamu, 2010). As such, an increase in life satisfaction is noted at that particular moment when the income is increased. However, after some time when no increment in income is noted, the situation return to normal and the level of life satisfaction decreases until the time when income increases again. Therefore, unless the increment in income is sustained, life satisfaction cannot be increasing (Elliot, 2013). Another argument is that the correlation is just but an illusion. The proponents of this view state that people gauge their life satisfaction by comparing their present status to their previous status or that of their friends and adversaries to determine their level of satisfaction (Glatzer, Von Below and Stoffregen, 2004). Other researchers have faulted the linear relationship between life satisfaction and GDP per capita (Diener, Diener and Diener, 1995). According to these scholars, life satisfaction increases with increase in GDP per capita only in the first four years of increment. After the fourth year, an increase in income does not have any effect on the level of life satisfaction (Nauert, 2013). This substantiates the notion that income growth has a temporary effect. Does increment in income increase life satisfaction in rich countries? Surveys have established that citizens in high income earning countries have a higher level of life satisfaction that those from low income earning countries (Tucker, 2012). According to Graham (2005), high GDP income of the country translates to a high GDP per capita of the citizens. Countries like the US, Saudi Arabia, Italy, France and the United Arab Emirates have a high GDP per capita and high life satisfaction among its citizens (Deaton, 2008). Looking at Figure 1, it is clear that high income translates to higher satisfaction. This is explained by the absence of countries that have high income yet low life satisfaction. Having established that there is a positive relationship it is time to investigate whether, for rich countries, increment in income causes increment in satisfaction. Figure 1: The level of satisfaction is directly proportional to the level of GDP per income of a country (Source: Deaton, 2008) This phenomenon is yet to be fully understood. Most researchers who have voiced their opinions state that rich countries cannot increase the level of life satisfaction of their citizens by increasing their GDP per income (Dodd ad Hasek, 1948). This is because of the several factors, some of them which have been already discussed. The major argument here is that an increase in per capita income will increase the level of life satisfaction until that point where the basic needs of individuals are fulfilled. After the basic needs are met any further increase in GDP per income will not cause an increase in satisfaction (Clark and Oswald, 1996; Robbins, 1938). For rich countries, majority of the population has enough income to meet the basic needs in life. If the increase in life satisfaction subsist only for the period when basic needs have not been met then these richer countries cannot be able to increase the level of life satisfaction of its citizens (McBride, 2001; Jain and Sandhu, 2008). This is synonymous to a tree experiencing stunted growth, even if manure is added to aid its growth it will not help. The second reason why the rich country’s citizens may not record an increase in satisfaction even after an increase in GDP per capita is because of the concept of marginal utility (Chung-Hung, Suchandra, and Ching-Po, 2014). Utility in economics is the level of satisfaction an individual derives from consuming a product or a service (Heakal, 2013; Graham, 2005). It is the degree of satisfaction. According to the law of marginal utility, with every unit increment in the consumption of a product, there is a proportional decrease in utility derived (Tucker, 2012). Therefore, if a person is consuming a product for the first time, the person will derive more satisfaction as compared to subsequent times. The utility keeps decreasing. The same concept applies in this context. For countries with citizens who already have high GDP per capita, an increment in their GDP per capita has less utility than it would have for citizens in countries with a lower GDP per capita (Deaton, 2008). The citizens in richer countries can be equated to a person who has consumed a product far too many times. One more unit of consumption does not have a major impact. But poorer countries can increase the GDP per capita to increase the level of life satisfaction of its citizens (Layard, 2005). This is because the marginal utility of its citizens is very high as income gain elicits large increments in the citizen’s life satisfaction. Any increase in income means that less people will go hungry, more children will afford to go to school, that more security guards will be employed to improve security and many other development initiatives. For rich countries, these resources and capabilities are almost always guaranteed and, therefore, the consequent low marginal utility. The third argument that suggests that an increase in GDP per capita will not increase the level of life satisfaction is that it is not sustainable in the long run (Anelski, 2013). Unless that country is planning to increase the life satisfaction level in the short run, doing so in the long run is impracticable. This is because it is the increment in income that causes an increment in level of satisfaction. If the country cannot sustain this increment in GDP per capita then the level of satisfaction cannot be sustained (Clark and Oswald, 1996). No country, however rich and naturally endowed, can sustain an increased GDP per capita for its citizens over an extended time (Jain and Sandhu, 2008). Lastly, as observed earlier, life satisfaction as a concept is based on abstraction and illusion (Glatzer, Von Below and Stoffregen, 2004). Therefore, people keep comparing themselves with their past and with their neighbours to determine whether they are really happy and satisfied with their lives. If all people are rich and experience increased GDP per capita, it generally follows that most citizens of the richer country will fail to notice any improvements in their lives. They, thus, will not perceive their life satisfaction as increasing because the illusion is that the situation and the environment have remained static even though that is not the case (Elliot, 2013; Hochman and Skopek, 2013). The government may, thus, end up increasing the GDP per capita of its citizens but the citizens’ perception of their life satisfaction remain the same. References Anielski, M., 2013. The economics of happiness: Building genuine wealth. New York: New Society Publishers. Blanchflower, D., and Oswald, A., 2004. Well-being over time in Britain and the USA. Journal of Public Economics, 88 (7), pp. 1359-1386. 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