Does economic growth make us happy? | Business | Economy and finance news from a German perspective | DW | 25.06.2013

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Does economic growth make us happy?

Extensive research on this question provides an unambiguous answer. But happiness does not only hinge on economic factors; private and political conditions also have an influence.

Money alone doesn't make us happy - we all know that by now. And yet money can go a long way towards making us feel happy: that's the result of decades of research work done by Bruno Frey who says that people who earn more are happier.

Frey is a Swiss economist who lectures at Warwick University in the UK and he's among the first scientists to look at economic models and their impact on how happy we feel. He says international comparisons also corroborate the assumption that economic growth and prosperity make us feel happier.

Copyright: imago/EQ Images Prof. Dr. Dr. h.c. mult. Bruno S. Frey

Economist Bruno Frey claims money can make you happy after all

"When we compare poor nations with countries where people have higher average incomes it becomes immediately obvious that that people in the richer nations are happier," says Frey.

A question of standards

When scientists like Frey talk about happiness, they have in mind a subjective level of personal satisfaction which they can measure. Respondents are asked how happy they are, and have to respond based on a scale of one to ten.

The original level of well-being is crucial for people's perception of the impact of having more money. A poor person is demonstrably happier at a doubling of income than a rich person is.

Of course, money isn't all that counts. "Many factors influence our perception of happiness," Frey says. He cites our genetic predisposition, physical health as well as social factors such as an intact family and friends.

Unlike in emerging countries such as China and India, in affluent societies like Germany economic growth has long stopped to be seen as a cure-all. "Other targets are more important," says economist Gerd Wagner from the German Institute for Economic Research (DIW Berlin).

"Low unemployment, sustainable state finances, a viable health system as well as democracy and freedom are all things which are valued higher in our polls than economic growth as such," he says.

Unemployed Greeks wait in a long line at a state labor office Photo:Thanassis Stavrakis/AP/dapd

Joblessness clearly impacts your happiness level

Growth can help to achieve those other targets, but it's not a prerequisite: "Unemployment can also be avoided by, for instance, lowering weekly working hours; people certainly agree to work less if their pay is alright anyway." And that depends on productivity levels, not on growth.

He also argues that solid state finances are also possible without growth: "You can reduce debt simply by spending less, or by increasing taxes."

Democracy a happiness factor

Political factors are also part of the happiness equation. "People living in democracies are happier than those in dictatorships," says Bruno Frey. Happiest are those for whom political decision-making appears logical and who can actually influence that process, especially at the community level.

Frey argues the European Union has huge democracy deficits. Polls such as the ones coming from the Washington-based Pew Research Center indicate that Europeans tend to put little faith in their political institutions.

"The EU should consider allowing more direct referendums on important issues," says Frey. "That way, the EU links European issues with what really moves people in the bloc."

Copyright: imago/Reiner Zensen Prof. Dr. Gert G. Wagner, DIW economist,

DIW economist Gert Wagner argues happiness without growth is possible

At least 20 million people are currently concerned about finding new employment. That's the number of officially registered jobless people, not counting the long-term unemployed.

Joblessness a disaster

Unemployment is a special mishap, says Frey. Normally people don't stay unhappy for a long time when something bad happens to them, and the level of satisfaction quickly returns to its original level. But it's different with joblessness.

People who lose their jobs really get unhappy. And Freq believes that the level of state benefits doesn't make much difference. Particularly for men, the only way to become happy again is to find a new job. "Women are somewhat less vulnerable in this respect," says Frey. "They compensate the loss of their jobs with looking for other tasks in their families, resulting in their quickly feeling better."

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