Economic Growth, Welfare Programs & Wellbeing

Is the main effect of economic growth on national wellbeing via employment and public welfare programs?

  •  Professor Paul  FrijtersProfessor Paul Frijters
    Yes
    The best evidence for this has come from the changes in transition countries, particularly the recent experience in China that saw a drop in life-satisfaction in the 1990s despite more than doubling in terms of individual average income. The culprit was the dismantling of the social safety nets around unemployment, pensions, and health that were in place before the 1990s. Only when social safety nets were re-introduced and expanded in the 2000s did Chinese life-satisfaction levels grow back to and overtake previous levels.

  •  Professor Mariano  RojasProfessor Mariano Rojas
    Yes
    We are moving from the study of the relationship between GDP and Happiness to the study of ways of using GDP and Happiness. GDP as an indicator of availability of goods and services points towards the study of which goods and services are available and how they are consumed. Happiness research has shown that many commodities have little impact on happiness (they satisfy wants and craves rather than needs, they are status markers, people do buy them but do not really consume them, and so on). If GDP finances welfare programs and if these programs are efficiently and transparently run then one would expect a greater impact of this purchasing power.

  •  Professor Bruno  FreyProfessor Bruno Frey
    Yes
    It is both but full employment is more important.

  •  Professor Ruut  VeenhovenProfessor Ruut Veenhoven
    Yes
    This certainly A main effect, but we are not sure of whether this is THE main effect, since there are many further effects, both positive and negative, which can prevail in specific conditions and differ in on the short and the long-term. A main long-term effect is that economic growth drives many societal changes beyond the economic domain, such as rising education, medical technology and political stability, which together create the modern individualistic multiple-choice society, in which we live now longer and happier than ever before in human history.

  •  Professor Stephen  WuProfessor Stephen Wu
    Yes
    There is extensive evidence that employment (or lack of) has a strong effect on individual wellbeing, over and above just the effects of the income generated through employment. In addition to the increase in the actual numbers of people with jobs, economic growth provides a sense of hope to those that may still be seeking jobs.

  •  Professor Richard  EasterlinProfessor Richard Easterlin
    Yes
    China has had unprecedented economic growth since 1990, as measured by GDP per capita, but life satisfaction has followed a U-shaped path and is no higher now than 25-30 years ago. Life satisfaction has failed to respond to economic growth because unemployment has grown and public welfare programs deteriorated. The important determinants of well-being are not an automatic effect of economic growth, and the requisite policies can be implemented independently of economic growth.

  •  Professor Carol  GrahamProfessor Carol Graham
    Yes
    And much more, such as health care.

  •  Doctor Jan-Emmanuel   De NeveDoctor Jan-Emmanuel De Neve
    Yes
    None

  •  Professor Mark   WoodenProfessor Mark Wooden
    No
    The absence of meaningful employment has consistently been found to be linked with lower levels of well-being. Thus the channel from economic growth to higher well-being via employment is clearly very important. Economic growth, however, is associated with other developments that generally enrich our lives -- the greater array of goods and services that arise from technological innovation, and greater investments in public infrastructure and services, may be equally, if not more important for national well-being. The massive improvement in public health and and increase in education levels that have accompanied economic growth are perhaps the most obvious examples here. At the same time, economic growth can also be associated with negative effects on well-being (e.g., if it is associated with increased congestion and reduced environmental quality). Employment is clearly a very important channel between growth and national wellbeing, but to state it is the MAIN effect may be going too far.

  •  Professor Alois  StutzerProfessor Alois Stutzer
    No
    Institutions that provide societal conditions allowing for long-term planning and projects are conducive to employment, the support of welfare programs, economic growth and with it high indivial well-being.

  •  Doctor Esteban  CalvoDoctor Esteban Calvo
    No
    Employment and public welfare programs are probably an important pathway connecting economic growth and national wellbeing. Other important pathways may include improvements in health, changing cultures, and varying inequalities.

  •  Professor Heinz  WelschProfessor Heinz Welsch
    Yes
    Since economic growth per se has negligiable SWB effects in developed economies, its wellbeing significance indeed rests on the stabilization of employment or avoidance of unemployment, the latter being the macroeconomic phenomenon most detrimental to national wellbeing. Given the repercussions of economic growth for environmental sustainability, growth appears as a necessary evil rather than as a good.

  •  Professor Ronnie  SchobProfessor Ronnie Schob
    Yes
    None

  •  Professor Ada  Ferrer-i-CarbonnellProfessor Ada Ferrer-i-Carbonnell
    Yes
    An important effect of economic growth on happiness might come indeed via employment to the extent that being unemployed is very damaging for individuals? well-being and individuals seem not to easily adapt to it (Clark et al., 2008). In addition, own unemployment has important spill-over effects on other family members (e.g., on children?s happiness and school achievements) as well as on the whole society (unemployment rate is also one of the macro-economic variables with the largest impact on individuals? happiness)(Tella et al., 2003). Public welfare programs might also be an important contributor to happiness, in so far poverty correlated with individuals? well-being and there seems to be poor adaptation to it (Clark et al., 2018). Nevertheless, there are other variables brought up by economic growth that have a direct or indirect impact on happiness, notably access to education and health, and democracy. I do not know of any study that estimates a full model of the direct and indirect impacts of economic growth. Clark, A., E. Diener, Y. Georgellis and R. Lucas, 2008. Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis. Economic Journal, 118: F222-F243. Di Tella, R., R.J. MacCulloch, and A.J. Oswald, 2003. The Macroeconomics of Happiness. Review of Economics and Statistics, 85: 809?827. Clark, A., C. D?Ambrosio, and S. Ghislandi, 2018. Adaptation to Poverty in Long-Run Panel Data. Review of Economics and Statistics, 98: 591?600.

  •  Professor Ada  Ferrer-i-CarbonnellProfessor Ada Ferrer-i-Carbonnell
    Yes
    An important effect of economic growth on happiness might come indeed via employment to the extent that being unemployed is very damaging for individuals? well-being and individuals seem not to easily adapt to it (Clark et al., 2008). In addition, own unemployment has important spill-over effects on other family members (e.g., on children?s happiness and school achievements) as well as on the whole society (unemployment rate is also one of the macro-economic variables with the largest impact on individuals? happiness)(Tella et al., 2003). Public welfare programs might also be an important contributor to happiness, in so far poverty correlated with individuals? well-being and there seems to be poor adaptation to it (Clark et al., 2018). Nevertheless, there are other variables brought up by economic growth that have a direct or indirect impact on happiness, notably access to education and health, and democracy. I do not know of any study that estimates a full model of the direct and indirect impacts of economic growth. Clark, A., E. Diener, Y. Georgellis and R. Lucas, 2008. Lags and Leads in Life Satisfaction: A Test of the Baseline Hypothesis. Economic Journal, 118: F222-F243. Di Tella, R., R.J. MacCulloch, and A.J. Oswald, 2003. The Macroeconomics of Happiness. Review of Economics and Statistics, 85: 809?827. Clark, A., C. D?Ambrosio, and S. Ghislandi, 2018. Adaptation to Poverty in Long-Run Panel Data. Review of Economics and Statistics, 98: 591?600.

  •  Professor Nick  PowdthaveeProfessor Nick Powdthavee
    Yes
    I would be inclined to say yes, given that we know how detrimental unemployment and poverty are to the wellbeing of the population. But this then raise other important questions. If this is true, then can the Easterlin Paradox be explained in part by the fact that economic growth is not being allocated sufficiently to improving public welfare programs? Or that economic growth is attributed to too few very rich people in a country that it does not do enough to help alleviate unemployment?

  •  Professor Andreas  KnabeProfessor Andreas Knabe
    Yes
    The answer is yes when considering subjective well-being and short-run economic growth. We know that unemployment is detrimental to subjective well-being. Short-run economic growth (business cycle upswings) generally go hand in hand with reductions in unemployment and are thus beneficial to subjective well-being. Long-run growth, i.e. steady growth rates over longer periods of time, does not necessarily cause lower unemployment, but is instead generally consistent with constant unemployment rates (natural unemployment). This type of growth will thus have no effect on subjective well-being via employment. Instead, it raises incomes and a society's productive capacities, which could be used for better health services, education etc. Even if this has no effect on measured subjective well-being due to habituation and social comparisons (Easterlin paradox), it could still be considered beneficial for national well-being in a wider, "objective" sense.

  •  Professor Paul  FrijtersProfessor Paul Frijters
    Yes
    Evidence for this statement comes from three sources: i) the mass of evidence that the effect of rising consumption levels on national wellbeing is minimal because of status considerations, ii) the strong individual and regional effect of unemployment (eg Clark et al. 2010), iii) the strong effect of efficient welfare programs on national wellbeing in China and Latin America (see the World Happiness Reports 2015, 2016, 2017; or Rothstein 2010 for a dedicated paper). Rothstein, B. (2010). Happiness and the welfare state. Social Research: An International Quarterly, 77(2), 441-468. Clark, A., Knabe, A., & Ratzel, S. (2010). Boon or bane? Others' unemployment, well-being and job insecurity. Labour Economics, 17(1), 52-61.

  •  Professor  Benjamin  RadcliffProfessor Benjamin Radcliff
    Yes
    this may not be a publishable response: the question confuses in that requires one to speculate about growth acting via employment and the welfare state, which are odd things (to me) to combine....implying that growth increases the size of the welfare state, as well as reducing unemployment. the question also assumes that economic growth does contribute to national wellbeing....sorry to nitpick but i don't feel comfortable with a proper comment here for those reasons.

  •  Professor Wenceslao  UnanueProfessor Wenceslao Unanue
    No
    First of all, it is of key importance mentioning the Easterling Paradox. The paradox is simple, but enlightening. Whereas people with higher income (e.g. because of higher GDP) report, on average, higher levels of happiness in cross-sectional studies, the association disappears over time using longitudinal designs (Easterlin, Hinte, Zimmermann, & der Arbeit, 2010). Thus, if we understand national well-being in terms of subjective experiences, there is no long-term effect (longitudinal, causal) of economic growth on national wellbeing. It makes difficult to answer the current survey question. Nonetheless, if we focus only on the cross-sectional link between economic growth on national wellbeing, it is possible to approach the question. Why the higher the GDP, the higher the levels of happiness in the short-run? Employment and public welfare programs indeed play a key role. On the one hand, employment, for example, may help people to fulfill their material needs as well as their psychological needs (relationships, meaning, security, etc.). On the other hand, unemployment may lead to money problems as well as to psychological problems (self-esteem, insecurity, human loneliness, etc.). Therefore, the link from economic growth to well-being through employment does exist and it is of key importance. I am not sure if it is the main mediator, but I am sure it is a key one. References Easterlin, R. A., Hinte, H., Zimmermann, K. F., & der Arbeit, F. Z. Z. (2010). Happiness, growth, and the life cycle. New York: Oxford University Press.

  •  Professor Martin  BinderProfessor Martin Binder
    Yes
    Employment and insurance against adversity are certainly drivers of national well-being (happiness). But we should not forget that economic growth can also impact on well-being through better health care and education. None of these are guaranteed though, it seems, and they depend crucially on good policies (just compare the health systems of the USA with those in the UK or Germany; or compare the types of jobs and welfare programs created).

  •  Doctor Maarten  Vendrik Doctor Maarten Vendrik
    Yes
    Economic growth diminishes unemployment and is likely to promote public welfare programs (see, e.g., Kaiser and Vendrik, 2017a). Furthermore, both lower unemployment and more developed public welfare programs enhance national (subjective) wellbeing (op . cit.). Hence, economic growth raises national wellbeing via less unemployment and better public welfare programs (or more in general, public goods provision). For more developed countries this channel seems more important than other possible channels like that which runs via a higher average level of individual income (that tends to have relatively small effects on subjective wellbeing). However, for highly developed countries the overall long-term effects of economic growth on national well-being still tend to be insignificant or negative (Easterlin, 2016; Proto and Rustichini, 2013; Kaiser and Vendrik, 2017b). This suggests countervailing negative effects of economic growth on national wellbeing like income aspirations that rise more strongly than actual income levels (Proto and Rustichini).





With the population?s wellbeing in mind, should the main focus of macro-economics be maintaining low unemployment?

  •  Professor Paul  FrijtersProfessor Paul Frijters
    Yes
    of course

  •  Professor Mariano  RojasProfessor Mariano Rojas
    No
    Employment has three functions: producing goods and services, structuring our time, and distribution income. The production of goods and services is not so relevant because happiness studies show that greater income is not associated to greater happiness; in other words, most goods produced by employees are not contributing to happiness -its relevance depends on the kind of goods which are being produced-. Hence, macroeconomics should focus on ways of structuring our time and ways of distributing income that do not require full employment.

  •  Professor Bruno  FreyProfessor Bruno Frey
    Yes
    definitely

  •  Professor Ruut  VeenhovenProfessor Ruut Veenhoven
    Yes
    Keeping unemployment low should certainly be A main objective, but not at all costs. In former communist societies full employment was achieved at the cost of economic efficiency and individual freedom, which resulted in low life-satisfaction.

  •  Professor Stephen  WuProfessor Stephen Wu
    Yes
    I agree that this should be a primary (though not the sole) focus of macroeconomics. Being employed provides a source of meaning and purpose for individuals, in addition to providing financial stability.

  •  Professor Richard  EasterlinProfessor Richard Easterlin
    Yes
    Assurance of jobs or of income support in their absence is a crucial starting point for well-being, but jobs should be accompanied by a strong safety net.

  •  Professor Carol  GrahamProfessor Carol Graham
    Yes
    again among many other objectives such as access to health care

  •  Doctor Jan-Emmanuel   De NeveDoctor Jan-Emmanuel De Neve
    Yes
    Di Tella et al and others have clearly shown the relative importance of unemployment. Jobs by themselves, however, do not suffice since these jobs also need to be jobs of some quality in order to be wellbeing-inducing.

  •  Professor Mark   WoodenProfessor Mark Wooden
    No
    While achieving and maintaining "full employment" has long been a stated policy objective in many countries, low unemployment cannot be the only objective. Most obviously, there is the trade-off with inflation to consider, with many central banks now targetting inflation first (though in a low inflation world this should imply greater primacy to unemployment). There is also the question of the quality of employment. Is any job always better than no job for well-being? I think not. Government policy should be focussed not simply on maintaining low unemployment, but also on promoting opportunities for high-quality employment.

  •  Professor Alois  StutzerProfessor Alois Stutzer
    Yes
    Meaningful employment is key for social cohesion and people's subjective well-being. A relatively bigger weight in considerations about economic (macro-) policy is to be recommended.

  •  Doctor Esteban  CalvoDoctor Esteban Calvo
    Yes
    If unemployment quality is poor and inequalities are substantial and increasing, maintaining low unemployment rates is unlikely to result in sustainably high population well-being.

  •  Professor Heinz  WelschProfessor Heinz Welsch
    Yes
    Since unemployment is the macroeconomic phenomenon most detrimental to national wellbeing, maintaning low unemployment should indeed be a major focus of economic policy. Maintaining high employment without growth-related environmental repercussions is, however, a big challenge. Since unemployment undermines wellbeing mainly through social exclusion and a perceived lack of purpose in life, it may be contemplated to reduce those repercussions by substituting work by other ways in which people can participate in social life.

  •  Professor Ronnie  SchobProfessor Ronnie Schob
    Yes
    None

  •  Professor Ada  Ferrer-i-CarbonnellProfessor Ada Ferrer-i-Carbonnell
    No
    Maintaining employment would indeed be an important well-being enhancing policy (see answer to part 1). In addition, and as convincingly argued by De Neve et al. (2018), macro-economics should also focus on economic stability rather than growth only. De Neve, J-E, F. De Keulenaer, G. Kavetsos, M. Norton, B. Van Landeghem, and G. Ward, 2018, The asymmetric experience of positive and negative economic growth: global evidence using subjective well-being data. Forthcoming Review of Economics and Statistics.

  •  Professor Ada  Ferrer-i-CarbonnellProfessor Ada Ferrer-i-Carbonnell
    Yes
    Yes, but not the only. Maintaining employment would indeed be a well-being enhancing policy (see answer to part 1). In addition, and as convincingly argued by De Neve et al. (2018), macro-economics should also focus on economic stability rather than growth only. De Neve, J-E, F. De Keulenaer, G. Kavetsos, M. Norton, B. Van Landeghem, and G. Ward, 2018, The asymmetric experience of positive and negative economic growth: global evidence using subjective well-being data. Forthcoming Review of Economics and Statistics.

  •  Professor Nick  PowdthaveeProfessor Nick Powdthavee
    Yes
    Yes, I believe so. Unemployment has one of the strongest negative effect on the average wellbeing compared to other macro indicators.

  •  Professor Andreas  KnabeProfessor Andreas Knabe
    Yes
    Unemployment has been shown to be one of the worst life events to which there is practically no adaptation. Hence, macroeconomic policymaking should aim at maintaining low unemployment. Empirical studies have shown that reducing unemployment is more important that other macroeconomic objectives, e.g. low inflation rates.

  •  Professor Paul  FrijtersProfessor Paul Frijters
    Yes
    The statement is obviously a simplification but is roughly right: i) other macro-outcomes (inflation, consumption levels, industry structure) have not been shown to matter much, ii) the strong negative spike in national wellbeing in recessions corresponds to big unemployment jumps, apparently driven largely by increased anxiety amongst the whole population. The literature has also consistently found that almost any job is preferable to no job (eg Winkelmann and Winkelmann (1998)). The lessons of the Great Depressions of the 1930s and 2008 are thus the same: it's about jobs. Winkelmann, L., & Winkelmann, R. (1998). Why are the unemployed so unhappy? Evidence from panel data. Economica, 65(257), 1-15.

  •  Professor  Benjamin  RadcliffProfessor Benjamin Radcliff
    Yes
    Abstractly, low unemployment is hugely important, and more so than other obvious economic indicators. Thus, low unemployment inflation preferred to low inflation, or low deficits, yes--of course. But the question is at what cost to other goals? But are other trade-offs being considered? Maintaining the welfare state--or even more closely tied to unemployment, pro-worker labor market regulations--one might well prefer to maintain the welfare state and LMR over growth.

  •  Professor Wenceslao  UnanueProfessor Wenceslao Unanue
    No
    We need to move toward a happier and more sustainable society. With this in mind, the main goal of Macro-economic can't be only maintaining low unemployment. Employment is of key importance. However, other issues like social justice, fair trade, poverty reduction, investment (e.g., social capital), environment protection and over consumption reduction should also be the focus of macro-economics.

  •  Professor Martin  BinderProfessor Martin Binder
    No
    Low unemployment is certainly very important as long as our identity is shaped that much by working, but we should not forget the type of work people can engage in: I think we should be much more concerned about what sort of work we create.

  •  Doctor Maarten  Vendrik Doctor Maarten Vendrik
    Yes
    Because in more developed countries the main positive effects of economic growth seem to run via diminished unemployment and more advanced public welfare programs, and because people in general seem to be happier when having a job than when making use of a public welfare program while being involuntarily unemployed, the main focus of macro-economics should, in my view, indeed be maintaining low unemployment. However, although in the present capitalistic and competitive world economy, economic growth seems a necessary means to achieve this, low unemployment might also be maintained by other means like a more equal sharing of the available work. On a more fundamental level, the policy objective of maintaining low unemployment may be more broadly understood as promoting useful work in the interest of society for everybody whether it is paid or volunteering work.