CRISIS ON THE HAPPINESS LEVEL IN SOUTH EUROPE
MA Thesis in European Studies Graduate School for Humanities
Universiteit van Amsterdam Main Supervisor Peter Rodenburg
Second Supervisor Marjet Brolsma September, 2018
Summary
Considering the implications of the economic crisis in South Europe and the overriding
economic policymaking focus among governments, the inquiry sought to explore the impact of the economic crisis on the happiness levels experienced in South Europe with the aim of
producing insights that could inform policy changes based on the Easterlin paradox and relative income hypothesis. Through a review of literature, the study compared South and North Europe in terms of happiness levels and impact of the economic crisis, demonstrating the comparatively poorer outcomes for South Europe. The inquiry then employed a multiple case study approach to explore the trends in incomes and happiness in the pre-crisis, crisis, and post crisis periods in Spain, Italy, and Greece. The findings confirm the Easterlin paradox in terms of the lack of positive association between income growth and happiness, wellbeing, and life satisfaction levels. Moreover, the findings also demonstrate that income equality plays a crucial role in determining subjective wellbeing, aligning with the relative income hypothesis. In light of these findings, and when taking into account the failures that accompanied austerity-based government responses to the crisis, the study informs a number of policy recommendations centered on a shift in government policymaking focus towards welfare state models alongside reorientation from maximum incomes to income equality.
Contents
Summary...2
Chapter 1...5
1.0 Introduction...5
1.1 Justification...6
1.2 Aim and Objectives...8
1.3 Research Questions...8
1.4 Proposed Method...9
1.5 Hypotheses...11
1.6 The Scope of the Study...11
1.7 Overview of Subsequent Chapters...12
Chapter 2...13
2.0 Theoretical Framework...13
2.1 Easterlin Paradox...13
2.2 Relative Income Hypothesis...16
2.3 Overview of the Chapter...17
Chapter 3...19
3.0 Literature Review...19
3.1 Economic Crisis in Europe...19
3.1.1 Implications of the Economic Crisis in Europe...21
3.1.2 Countries Most Affected...27
3.2 Happiness Surveys...32
3.2.1 Information from the World Happiness Report and Eurobarometer...32
3.2.2 Relationship between Happiness and Income...35
3.2.3 Differences between North and South European Countries...39
3.3 Overview of the Chapter...42
Chapter 4...43
4.0 Case Study Analysis and Discussion...43
4.1 Case Studies...43
4.1.1 Spain...43
4.1.2 Italy...46
4.1.3 Greece...49
4.2 Income Levels and Happiness...52
4.2.1 The Case of Spain...52
4.2.3 The Case of Greece...60
4.3 The Key Observations...64
4.4 Government Response...66
4.5 Overview of the Chapter...69
Chapter 5...71
5.0 Conclusion and Recommendations...71
5.1 Conclusion...71
5.2 Policy Recommendations...74
Chapter 1 1.0 Introduction
The 2007-2008 global financial crisis had significant socioeconomic and political effects in many countries. In Europe, the crisis took a toll on the larger economies while almost paralyzing others. Italy, Greece, Spain, and Portugal are some of the economies most affected by the
economic crisis, whereby economic and political crises unfolded in parallel fashion, with the institutional responses to the economic crisis fomenting the latter political crises.1 The post-crisis
period has seen much scholarly attention focusing on various aspects of the financial meltdown, including its economic and financial impacts, political implications, resilience and responses, and achievements made in the efforts towards recovery.2 Amid such focus, the impact of the crisis on
individual and societal wellbeing from a largely social perspective has not received much
attention and emphasis. The present inquiry seeks to explore the impact of the economic crisis on the happiness levels experienced in South Europe, which will produce insights that help fill the aforementioned gaps in knowledge.
This introductory chapter not only provides a brief background on the topic, but also elaborates on the justification for undertaking the study. A look at the aims and objectives of the study, research questions, and study hypotheses then follows, helping clarify the topic and purpose of the study. The next subsection then addresses the approach undertaken in the inquiry, describing the proposed research method and its justification. An overview of the scope and subsequent chapters in the study then concludes the introductory chapter.
1 Anna Zamora-Kapoor and Xavier Coller, “The Effects of the Crisis: Why Southern Europe?” American Behavioral Scientist 58, no. 12 (2014): 1511.
2 Riccardo Crescenzi, Davide Luca, and Simona Milio, “The Geography of the Economic Crisis in Europe: National Macroeconomic Conditions, Regional Structural Factors and Short-Term Economic Performance,” Cambridge Journal of Regions, Economy and Society 9, no. 1 (2016): 13-32; Hanspeter Kriesi, “The Political Consequences of the Financial and Economic Crisis in Europe: Electoral Punishment and Popular Protest,” Swiss Political Science Review 18, no. 4 (2012): 518-522.
1.1 Justification
The economic crisis had grave implications that have transformed Europe in various different ways. In response to the impacts of the financial meltdown, governments have instituted deep institutional changes, with the past decade witnessing historical turning points for aspects such as democratic representation, social protests, and labor relations.3 In the process, the economic
crisis has resulted in shifts in the structure and organization of the political field in Europe, leading to the advent of new political actors alongside novel alignments across both new and old sociopolitical issues. Notably, some of the most affected countries, such as those in South Europe, have had to embrace austerity as a strategy towards reducing debt and arrest the economic decline. However, outside Portugal, other South European countries have found it difficult to address challenges related to the crisis, including declining household incomes, unemployment, and widening socioeconomic inequality between the rich and the poor. For instance, Greece, Spain, and Italy experienced household income declines by 14%, 5%, and 3%, respectively, while the Gini inequality index indicated heightened inequality for Greece (33 to 34.3), Spain (32 to 35), and Italy (29 to 31.9).4 In terms of unemployment between 2008 and
2012, the rate for Greece grew from 7.8% to 24.5%, while the rates for Spain and Italy grew from 11.3% to 24.8% and 6.7% to 10.7%, respectively.5
While the aforementioned observations regarding the wealth gap, household income, and unemployment implications of the economic crisis indicate that individuals and families bore the brunt of the financial meltdown, the welfare of the citizens of South Europe has received the attention it deserves. In both scholarship and practice, the focus has gone to the economic and political consequences and remedial measures, relegating the plight of the people from the 3 Anna Zamora-Kapoor and Xavier Coller, 1511-1512.
4 Ibid., 1512.
5 “Unemployment Rate- Annual Data,” Eurostat, last modified 2017, http://ec.europa.eu/eurostat/tgm/table.do? tab=table&init=1&language=en&pcode=tipsun20&plugin=1
picture. At the same time, the remedial measures undertaken at the height of the economic crisis did not effectively relieve such suffering. For instance, policy and institutional reforms still showed a tendency towards market-oriented inclinations and business strategies at the expense of the people’s welfare.6 Moreover, the policies in response to the economic crisis have revolved
around restrictive budgets and dismantled welfare. Such developments and the continued focus on absolute income have occurred amid economic stagnation and neoliberal pressures resulting from the globalization of finance and production. Additionally, the austerity measures adopted by these South European countries had the effect of further widening the rich-poor gap while also engendering new forms of inequality, which have not received significant scholarly attention.7
These considerations indicate the need to focus on the welfare and wellbeing of the people of South Europe, which may influence changes in policy directions in important ways. One of the perspectives may pertain to the general happiness of the residents of these countries, which may necessitate a paradigm shift in policymaking away from focusing on absolute incomes and market considerations. A look at alternative policies may be timely, especially considering the rise of anti-austerity and anti-neoliberal sentiment in Europe in the post-economic crisis period in response to the erosion of social protection owing to the policies pursued by states in light of the crisis.8 The lack of attention to the happiness dimension at both
the policy, practice, and scholarship levels provides a strong rationale for undertaking the present inquiry. The serious impact of the economic crisis on the welfare of the people of South Europe further supports the necessity of the study. The findings from the study will prove useful in providing policymakers in South Europe and beyond with a new perspective of economic 6 Leonardo Morlino and Francesco Raniolo, The Impact of the Economic Crisis on South European Democracies (Palgrave Macmillan, 2017), 93.
7 Anna Zamora-Kapoor and Xavier Coller, 1512. 8 Leonardo Morlino and Francesco Raniolo, 102.
policymaking. Additionally, the study will contribute to the existing evidence on economic crises and associated policymaking through providing evidence that helps fill existing data gaps, considering the current lack of focus on this topic in the existing knowledge base.
1.2 Aim and Objectives
The overall aim of the study is to determine the effects of the economic crisis on the level of happiness among residents of South Europe. In pursuing this aim, the study will be guided by the following objectives.
To explore the levels of happiness in South Europe during and immediately after the economic crisis
To determine the differences in levels of happiness between South and North Europe in light of the differential effects of the economic crisis
To explore the implications of the remedial policies taken by South European governments for the levels of happiness in light of the economic crisis
To propose recommendations and changes that would enable governments institute more appropriate and desirable economic policies
1.3 Research Questions
In exploring the aforementioned aim, the study will seek to answer the following research questions.
1. What were the differential effects of the economic crisis in North and South Europe? 2. What were the impacts of the economic crisis on the levels of happiness in South
Europe, as compared to North Europe?
3. Which measures did South European governments pursue in response to the crisis, and how effective were these measures in the context of happiness levels?
4. What are the implications of level of happiness considerations on economic policymaking in South Europe?
1.4 Proposed Method
The study will employ a multiple case study design, whereby the case study method pertains to an empirical inquiry pertaining to a contemporary phenomenon within its real world context.9
The rationale for selecting the case study method lies in its appropriateness and relevance for the present study. In this case, the case study method is especially useful in the context of descriptive and explanatory research questions, pertaining to what has happened and how or why it
happened.10 The present study, in exploring the implications of the economic crisis in relation to
happiness levels, poses descriptive and explanatory questions, as demonstrated in the
immediately preceding subsection. Moreover, the case study approach is important when a study emphasizes the real-world context of the phenomenon under inquiry, especially where the contextual conditions are relevant to the study. This provision aligns with the essence of the present study, as the South European context is a central consideration for the study.
Additionally, the case study is also important in scenarios in which the researcher cannot
manipulate nor has no interest in manipulating the behavior of the parties involved in the study.11
The context and purpose of the study, pertaining to levels of happiness in light of the economic crisis in South Europe, does not involve any experimentation, which makes the case study method approach highly relevant.
In terms of case selection, the strategy entails a purposive approach, whereby the main factor pertains to selecting cases as informed by the purpose and research questions. As a result, the South European context informs the selection of Greece, Spain, and Italy as the cases that 9 Robert K. Yin, Applications of Case Study Research (Sage Publications, 2012), 4.
10 Ibid., 5.
11 Pamela Baxter and Susa Jack, “Qualitative Case Study Methodology: Study Design and Implementation for Novice Researchers,” The Qualitative Report 13, no. 4 (2008): 545.
will be analyzed in the present study. At the same time, the use of such a multiple case study design will help in triangulating the findings made, as triangulation through exploring data from multiple sources and perspectives in converging fashion helps foster consistency and
trustworthiness.12 In the interests of rigor, a comparative approach will be undertaken in which
cases from North Europe will also be considered where appropriate, which will be crucial in testing the present study’s hypotheses.
In terms of data collection, the approach will entail a review of primary and secondary sources on the two aspects crucial in answering the research questions, namely general
information on the economic crisis and information on happiness during and immediately following the crisis. In terms of the former, data collection will be undertaken through focusing on authoritative literature and statistics on the topic of the economic crisis in Europe. Meanwhile, data collection on happiness will entail sourcing relevant data from authoritative and reliable surveys such as the World Happiness Report and Eurobarometer.
The process of data analysis will then involve the steps of data immersion, coding, reduction, and interpretation.13 In data immersion, the researcher will examine the data to
familiarize with the content intimately, helping identify any emerging themes, relationships among categories or themes, and unusual or contradictory content. The next step in data analysis will entail data coding, in which the researcher will attach codes or labels to the various text or data segments corresponding to different issues, in the process helping categorize information into according to themes for easy sorting, comparison, and analysis. Data reduction will then involve the researcher selecting, simplifying, focusing, and abstracting data to transforms it into typed summaries organized according to the themes or emerging patterns informed by the 12 Robert K. Yin, 13.
13Mary Ellsberg and Lori Heise, Researching Violence against Women: A Practical Guide for Researchers and Activists (WHO-PATH, 2005), 204.
study’s original objectives. Finally, the researcher will complete data analysis by interpreting or deciding what the findings in terms of themes and patterns mean, helping draw inferences and inform the generation of policy recommendations in line with the objectives of the study.
1.5 Hypotheses
The described data analysis steps will help test the following hypotheses.
H1: Focusing on economic growth does not translate to improving the subjective wellbeing of people in a country.
H2: The focus on maximum income in economic policymaking exposes
individuals and families to disrupted wellbeing and welfare once economic crises take place.
H3: Emphasizing income equality in economic policymaking is more protective of wellbeing, welfare, and associated contentment when compared to emphasizing maximum income.
1.6 The Scope of the Study
The study will be restricted to the issue of happiness in terms of objective, mostly ignoring other implications of the economic crisis such as political and economic impacts unless directly or indirectly relating to happiness. The study will also ignore other social impacts of the financial crisis that fall outside happiness and contentment. In terms of geographical scope, the study will be restricted to the context of South Europe, referencing other areas in Europe for comparison while entirely precluding the implications of the economic crisis outside Europe. Within the South Europe context, the study will focus on Greece, Spain, and Italy, given their relevance for the inquiry in relation to the dire implications of the economic crisis.14
1.7 Overview of Subsequent Chapters
In terms of the sections succeeding the introduction, a chapter on the theoretical framework for the study will immediately follow, providing a conceptual basis for the inquiry. The third chapter will then provide an overview of the economic crisis in Europe, shedding light on the countries affected most and in what ways, besides also exploring the relationship between happiness and income and preliminarily mentioning any differences between North and South European countries. The next chapter will then entail an in-depth exploration of the cases themselves, namely Spain, Italy, and Greece, investigating their income levels and happiness reports before and after the crisis alongside the measures taken by the respective governments in response. The concluding chapter will then summarize the findings of the study, before then providing policy recommendations informed by the inferences made from the analysis.
Chapter 2
2.0 Theoretical Framework
This chapter provides an overview of the theoretical bases behind the study, which are crucial in the formulation and testing of the hypotheses. In particular, the chapter explores the Easterlin paradox, which pertains to the relationship between changes in income and happiness within nations. Additionally, the chapter also sheds light on the relative income hypothesis, which pertains to the role of relative versus absolute income in determining subjective wellbeing. An overview of the two frameworks and their implications for the study then concludes the chapter.
2.1 Easterlin Paradox
The Easterlin paradox emerges from the growing attention to the causes and correlates of human happiness in the field of economics, both at a scholarship and practice level. The theory
highlights how substantial real income growth in nations does not necessarily translate to a corresponding increase in reported happiness levels, which constitutes a paradox given the expectation that higher income ought to lead to greater happiness.15 Beyond economists, a similar
contention regarding such a paradox has been made psychologists and political scientists. In Western economies, trends over the last 50 years indicate that increasing income is not
accompanied by the expected rise in happiness, with additional income buying little or no extra happiness. As an example, an Easterlin graph made for the American context between 1973 and 2004 shows that the doubling of real income per capita occurs while happiness based on statistics from the General Social Survey does not reveal any trend, as seen in figure 1. Similar
observations are also made for Europe, whereby no substantial rise in life satisfaction is observed despite the sharp rise in real income per capita that has occurred in countries such as the UK,
15 Andrew E. Clark, Paul Frijters, and Michael Shields, “Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles,” Journal of Economic Literature 46, no. 1 (2008): 95-96.
Netherlands, Germany, Italy, and France, as demonstrated in figure 2. Instead, scholars have argued that once individuals rise above the poverty line or a given subsistence level, the primary source of increased well-being, which corresponds to happiness, is friends and good family life rather than income.16 In the context of the present study, the Easterlin paradox has radical
implications for economic policymaking in the developed world. Here, in light of the Easterlin paradox, economic growth per se is not of absolute importance, and should not constitute the central aim of economic policy.
Figure 1: Rising real income per capita over a 30-year period in the US, showing no relationship with happiness levels, in the process demonstrating the Easterlin paradox.17
16 Ibid., 2. 17 Ibid., 2.
Figure 2: Life satisfaction in five European countries between 1973 and 2004, showing insignificant increase despite the substantial rise in real income per capita that occurred over the same period.18
More recent studies expand the scope of Easterlin paradox beyond the developed world, showing that economic growth does not necessarily translate to heightened happiness in the long-term regardless of the state of economic development in a country. In the study, the scholars surveyed 17 developed countries, 11 Eastern European countries observed to be in transition from socialism to capitalism, 17 Latin American countries, and 9 less developed countries drawn from Latin America, Asia, and Africa.19 For the 17 Latin American countries,
the 1994–2006 annual time series demonstrated a nil relationship between annual GDP growth rates and average annual change in financial satisfaction. For the worldwide sample made of the remaining 37 countries reviewed over a 12 to 34 years time series, the scholars also reported no significant relation between rate of economic growth and improvement in life satisfaction. The conclusion from the Easterlin paradox is that absolute income has little to no effect on happiness, which then has far-reaching policy implications. In case of the aforementioned conclusion that economic growth contributes little to improving social welfare, people may have to deliberate on whether economic growth should be a primary goal of government policy. This view leads to questions whether emphasis on economic growth is in the best interests of society, with some even arguing for explicit government policy geared towards maximizing subjective well-being.20
In the current study’s context, the aforementioned contentions based on the Easterlin paradox inform the first hypothesis, H1, regarding the relationship between economic growth and wellbeing in a country.
18 Ibid., 3.
19 Richard A. Easterlin, Laura Angelescu McVey, Malgorzata Switek, Onnicha Sawangfa, and Jacqueline Smith Zweig, “The Happiness–Income Paradox Revisited,” Proceedings of the National Academy of Sciences, (2010): 1-2. 20 Betsey Stevenson and Justin Wolfers, “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox,” CESinfo Working Paper, no. 2394 (National Bureau of Economic Research, 2008), 1.
2.2 Relative Income Hypothesis
The relative income hypothesis pertains to the assertion that an individual’s health or wellbeing has a direct relationship with the distribution of income within society, explaining the
relationship between income inequality and average health status. In terms of the nature of the relationship, the hypothesis relates income inequality with undesirable outcomes in health and wellbeing, whereby such inequality is thought to undermine social cohesion and result in detrimental psychosocial effect on individual health.21 As a result, individuals living in unequal
societies end up having worse health and wellbeing outcomes when compared to their counterparts in more egalitarian societies. The relative income hypothesis has attracted significant scholarly work, creating a compelling body of ecological evidence of statistical associations between various income inequality measures and average health status. This body of knowledge entails cross-sectional and longitudinal studies, studies within and between countries, and studies in high-, middle-, and low-income economies. In terms of variables, the multiplicity of studies have related economic measures such as the Gini coefficient, Robin Hood index, prevalence of relative poverty, percentage share of income received across population
percentiles, the decile ratio, the Atkinson Index, and Theil’s entropy measure with health and wellbeing measures such as disparities in mortality, life expectancy, and self-reported health status.22
Other scholars have explored the relative income hypothesis in the context of economic growth policies, a look at which helps relate this framework with the present inquiry. In this case, modern states deem economic growth a main goal based on the belief that heightened
21 George T. Ellison, “Letting the Gini Out of the Bottle? Challenges Facing the Relative Income Hypothesis,” Social Science & Medicine 54, no. 4 (2002): 561-562.
income translates to increased welfare.23 Whereas economists traditionally assume that accessing
more goods results in greater overall welfare, this assumption is challenged in recent empirical work, with the emerging evidence that an individual’s subjective well-being depends on relative to a large degree, rather than absolute income. As a result, raising incomes may not lead to increased happiness for all. Such ideas then lead to questions regarding the relative importance of many of current economic policies implemented by governments. In case economic growth only has insignificant effects on well-being, questions then arise regarding whether more attention should go to other social goals, whereby equality of incomes should be a more
prominent social goal. At the same time, policymakers may have to ponder whether reduction in inequality is a process towards improving wellbeing.24 Such considerations are crucial in the
current study’s context, especially in framing the third hypothesis in relation to placing emphasis on income equality for improvements in wellbeing, welfare, and contentment outcomes, rather than emphasizing maximum income.
2.3 Overview of the Chapter
This chapter provides the theoretical framework for the study, relating relevant theories with the hypotheses set for the study. The Easterlin paradox indicates that substantial real income growth does not lead to the expected corresponding rise in reported happiness levels, which constitutes a paradox. Meanwhile, the relative income hypothesis pertains to wellbeing and distribution of income in society, whereby income inequality is associated with undesirable outcomes in health and wellbeing. Overall, these frameworks help formulate the hypotheses surrounding economic growth and income inequality in relation to happiness, wellbeing, and contentment. Notably, both theoretical frameworks raise crucial implications for policymaking, considering that 23 Michael McBride, “Relative-Income Effects on Subjective Wellbeing in the Cross-Section,” Journal of Economic Behavior & Organization 45, no. 3 (2001): 251-252.
economic growth and absolute incomes constitute a central area of focus for governments. The questions arising owing to the two theoretical frameworks and accompanying hypotheses will help guide the study and inform the generation of policy recommendations in subsequent chapters.
Chapter 3 3.0 Literature Review
This chapter provides an analytic review of literature that illuminates various concepts and issues relevant the study. The review begins with an analysis of literature on the 2007-2008 economic crisis in Europe, exploring its occurrence and impacts, followed a look at the countries that were most affected by the economic crisis. The next subsection covers literature on happiness surveys, specifically focusing on the World Happiness Report and Eurobarometer. This subsection also explores the relationship between societal happiness and income, before providing a preliminary overview of the differences between North and South European countries in terms of happiness. A summary of the key observations from the literature reviewed then concludes this section in an overview of the chapter subsection.
3.1 Economic Crisis in Europe
The 2007-2008 global financial crisis, associated with various market and regulatory failures alongside the macroeconomic environment in the pre-crisis period, constitutes the most severe economic downturn since the 1930s Great Depression.25 The crisis led to the monumental
collapse or nationalization of some of the world’s most popular financial institutions, with many others only surviving because of massive state support. Notably, the crisis was unlike any other economic meltdown in the postwar period, as it affected the major financial centers across the entire world. Additionally, the crisis fomented the collapse of international trade to an extent more severe than any other since the 1930s, with the broader economic downturn involving all regions of the globe. What began in the US as burst of the housing bubble due to increasing mortgage defaults affected the stability of financial institutions in North America and Europe, as
25 Eric Hellenier, “Understanding the 2007-2008 Global Financial Crisis: Lessons for Scholars of International Political Economy,” Annual Review of Political Science 14, (2011): 68-69.
these institutions were exposed to mortgages and other financial products tied to mortgages. Hedge funds and money markets exposed to a wide range of financial institutions in the US and Europe led to many of these large financial institutions collapsing or being nationalized, harming investor confidence and gradually affecting many other aspects of national economies. The impact of the North Atlantic financial collapse would then spread around the world, as American and European banks pulled back international loans and triggered severe financial challenges and debt crises among borrowing countries. The crisis would escalate to truly global proportions once international trade credits dried up, bringing imports and exports to a standstill in many sectors and countries, alongside the occurrence of spillovers associated with collapsing exports, volatile commodity prices, and remittance payments.26
The objectives of the present study necessitate a focus on the European perspective of the economic crisis, where the financial downturn had severe social, economic, and political
impacts. A look at the crisis begins with exploring the European pre-crisis political economy. In this case, European countries had created and embraced a single currency, arguably before the members were ready for a common currency in light of the lack of sufficient economic
convergence for one currency to fit all participants.27 As a result, the common currency instead
pushed European economies further apart, with the likes of Spain and Ireland booming
unsustainably and developed huge deficits with the likes of Germany, creating vulnerability to the oncoming global financial crisis. Another precondition was the nature of the European banking system, which was huge and bloated in the pre-crisis period. Banks in European countries had grown huge and spread into a multiplicity of diverse financial services. The outcome was the banks becoming too huge for their governments to rescue with ease. The credit 26 Ibid., 69-70.
27 John Authers, Europe's Financial Crisis: A Short Guide to How the Euro Fell Into Crisis and the Consequences for the World (Pearson Education, 2013), 1.
crisis in the US would then affect European financial institutions, as they were exposed through debts on subprime US mortgages repackaged and sold to European banks by Wall Street. Once the credit crisis hit, European banks were sitting on obviously massive losses. Whereas the banks might have needed help from their governments to repair balance sheets, their huge size called into question the capacity of national governments to cover the losses borne by the banks.
Meanwhile, while governments usually choose to print more money and devalue their currencies to offset sovereign debts, European governments did not have such an option owing to the common currency. This situation created a problem where the likes of Greece, Portugal, Spain, and Ireland being at risk of defaulting and necessitating bailouts. The problem was exacerbated by questions regarding the availability of funds for such bailouts. Moreover, the EU instituted austerity measures that would prove counterproductive, as they cut into economic activity and reduced tax revenues while also causing a sociopolitical problem as instituting more austerity measures was politically untenable.28 Overall, the localization of the financial downturn
embodied the eurozone economic crisis, which has had lasting effects on the regions political economy.
3.1.1 Implications of the Economic Crisis in Europe
The economic crisis had untold impacts in European nations, affects many aspects on the economic, political, and social fronts. One of the approaches through which to explore the impacts of the economic crisis is from a firm-level perspective, which in turn illuminates its wider effects owing to the associated spillover effects. Scholars studying the credit crunch accompanying the European debt crisis demonstrate that the crisis had crucial implications for institutional performance, conduct, and corporate policies in Europe.29 The study demonstrates
28 Ibid., 2-3.
29 Viral V. Acharya, Tim Eisert, Christian Eufinger, and Christian Hirsch, “Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans,” (2016): 2855-2857.
that the exposure of banks to impaired sovereign debt alongside the risk-shifting behavior among undercapitalized banks contributed significantly to the severity of the Eurozone crisis.
Additionally, the crisis led to lending contraction among most banks affected by the crisis in turn led to depressed investment, job creation, and sales growth among the firms associated with the aforementioned affected banks. Ultimately, the analysis demonstrates that the European credit crunch may account for between 20% and 50% of the overall negative real effects experienced by European borrowing firms. The noted spill effects on aspect such as economic activity, investment, growth, and job creation then provide a window that illuminates the wider impact of the economic crisis in Europe.
Another study explores the economic implications of the crisis in Europe from a regional perspective, providing a lens different from the traditional national and macroeconomic
viewpoint.30 One of the most notable impacts of the economic crisis when looking at Europe
from a regional and city perspective was how it altered the convergence of regional and urban economies, besides also reducing migration, interfering with capital flows through reducing foreign direct investment, and increasing the disparities in regional labor markets. Another key observation pertains to the distribution of the deleterious impacts of the economic crisis, whereby the financial downturn led to immense contractions especially in urban and remote rural regions. Meanwhile, intermediate and rural regions proximal to urban areas displayed more resilience. In some national contexts, the capital metropolitan regions that had traditionally experienced significantly higher economic growth prior to the crisis now faced an inverted pattern due to the economic crisis. In the aftermath of the crisis, capital cities became central to the economic and financial problems facing European national economies.
30 Lewis Dijkstra, Enrique Garcilazo, and Philip McCann, “The Effects of the Global Financial Crisis on European Regions and Cities,” Journal of Economic Geography 15, (2015): 935–949.
Even more pertinent in the context of the present study were the social consequences of the economic crisis in Europe, especially in relation to the impacts of the crisis in terms of unemployment and institution of severe austerity measures. In one study, the scholars investigated the health effects accompanying the financial crisis and its associated austerity policies.31 The study highlights how different countries responded to the economic crisis, with
some like Spain and Greece choosing the austerity path while others such as Ireland rejected austerity. The impacts of adopting strict fiscal austerity measures included the weakening of social protection measures owing to budget cuts to social programs. Combined with the
significant levels of unemployment in various European countries, the introduction of austerity then crucially escalated health and social crisis in Europe. For instance, public health concerns such as HIV outbreaks were understood as resulting from the escalated state retrenchment. Meanwhile, other public health consequences were observable in the strain caused on various European health-care systems. The budget cuts to health care precipitated systemic strain, which in turn led to an increase in the rates of suicides and outbreaks of infectious diseases in affected European countries. Ultimately, the scholars concluded that the interaction of fiscal austerity measures with economic shocks alongside weakening of social protection sparked the unintended effects on public health.32
In addition to the aforementioned economic considerations, the political implications of the crisis also constitute an important aspect of the economic crisis in Europe. In one such study, the scholars focused on the impact of the economic recession on the political stability and change in Europe in terms of the party systems in light of the economic strife experienced in the
31 Marina Karanikolos, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David Stuckler, Johan P Mackenbach, and Martin McKee, “Financial Crisis, Austerity, and Health in Europe,” The Lancet 381, no. 9874 (2013): 1323-1331.
region.33 The study employed classic economic voting hypotheses while analyzing accounts of
long‐term party system change to identify the realignment patterns that took place in the post-crisis context. The scholars collected data from election results alongside economic and political indicators drawn from 30 European democracies. Based on these data, the findings indicated that economic strain that took place in Europe had an association with sizable losses experienced by incumbent political parties, besides also serving to destabilize Western European party systems. In terms of the realignment perspective, the findings also revealed that the economic crisis led to gains for populist non‐mainstream parties, the radical right, and the radical left in Western Europe while mainstream parties faced diminishing support. These observations reveal that the economic crisis has had pertinent political impacts, determining political realignment and influencing electoral results.
Beyond the economic and political consequences of the economic crisis in Europe, other scholars have focused on the social and health implications for various European societies. In one of such studies, the scholars explored concerns that the economic downturn would have adverse effects on public health in light of the accompanying job losses. The connection between the economic crisis and deterioration in public health derived from the impacts of financial downturns on unemployment.34 In this case, unemployment was viewed as worsening mental
health and addiction problems, as well as increasing the adoption of less healthy lifestyles, such as heightened consumption of cheap food associated with little nutritional value alongside elevated smoking in response to stress. At the same time, unemployment would also lead to poor disease management owing to delays in seeking care among patients, as well as the
33 Enrique Hernández and Hanspeter Kriesi, “The Electoral Consequences of the Financial and Economic Crisis in Europe,” European Journal of Political Research 55, no. 2 (2016): 203-224.
34 David Stuckler, Sanjay Basu, Marc Suhrcke, Adam Coutts, Martin McKee, “The Public Health Effect of Economic Crises and Alternative Policy Responses in Europe: An Empirical Analysis,” Lancet 374, (2009): 315-323.
overburdened health-care services. The findings from an unemployment model based on
economic crises demonstrated that a 1% rise in unemployment was associated with a 0.79% rise in suicides among those aged below 65 years. The effect size was also significant across all ages, with 1% rise in unemployment being associated with 0.49% rise in suicides for all ages.
Additionally, the 1% rise in unemployment was also associated with a 0.79% increase in homicides while more than 3% rise in unemployment had especially greater impacts on the suicide rates among those aged below 65 years. The 3% rise in unemployment also increased deaths from alcohol abuse by about 28%. Ultimately, these findings demonstrate that mortality rates may increase with unemployment depending on the presence or absence of social
protection. Considering that the economic crisis not only caused unemployment, but also eroded social protection in Europe, the extent of the public health crisis caused is demonstrably
significant. A later study on the actual effects of the 2008 economic crises by the same scholars confirmed the aforementioned observations. The scholars tracked unemployment and health outcomes in Europe in light of the economic crisis, demonstrating results at the upper limit of the earlier described estimates.35 In terms of unemployment, unemployment in 2009 had increased
by about 35% from the 2007 rates, capturing the severe impact of the crisis. Meanwhile, the steady downward suicide rates trend observed in Europe in the pre-crisis period reversed with the onset of the crisis. European countries experienced at least a 5% increase in suicide rates in this period.
Meanwhile, another study focused implications of the economic crisis for psychological wellbeing, noting that mental health and wellbeing of the populations involved were some of the manifestations of the many negative consequences of the crisis in Europe.36 In the same fashion
35 David Stuckler, Sanjay Basu, Marc Suhrcke, Adam Coutts, Martin McKee, “Effects of the 2008 Recession on Health: A First Look at European Data,” Lancet 378, (2009): 124-125.
36 Guido Van Hal, “The True Cost of the Economic Crisis on Psychological Well-Being: A Review,” Psychology Research and Behavior Management 8, (2015): 17-25.
as the previous studies reviewed, the scholars focused on the connection between crisis-driven implementation of mostly severe austerity measures and the health of the populations involved, noting that austerity policies tended to have negative implications for mental wellbeing. The connection arose because of the context in which just when individuals had an elevated need for mental help owing to the strain caused by the economic crises, austerity-driven cost-cutting measures in the health sector translated into a substantial decline in the supply of care in terms of preventions, timely detection, and treatments for mental health problems. These observations led to the scholars recommending that policymakers support and institute moderating mechanisms based by the observation that moderating factors play a role, including financial and
psychological coping, acculturation, and primary health care workers role. The proposal was informed by the observation that countries with the strongest social safety nets tended to have better outcomes in mental health in spite of the economic crisis. Rather than instituting the austerity driven cutbacks on health care and social welfare, the scholars concluded that investing in even more social protection measures during economic crises may constitute a better policy.
In a similar study, Buffel, van de Straat, and Bracke compared the relationship between employment status and utilization of mental health services before and after the economic crisis to explore service use during periods of economic contraction.37 In light of the observation that
the 2008 economic crisis had led to rising unemployment rates alongside exacerbated working conditions and substantial losses of income, the different periods considered helped the scholars determine whether the relationship between mental health care consumption and employment status was variable across macro-economic conditions. The findings demonstrated that mean unemployment rates have a negative correlation with mental health, albeit only applying to the 37 Veerle Buffel, Vera van de Straat, and Piet Bracke, “Employment Status and Mental Health Care Use in Times of Economic Contraction: A Repeated Cross-Sectional Study in Europe, Using a Three-Level Model,” International Journal for Equity in Health 14, no. 1 (2015): 29.
employed among women. Among men, the three scholars found that changes in unemployment rates and real GDP growth rate (reflecting changes in the macroeconomic context) were
associated with changes in mental health care use. These observations suggest that the economic crisis had the effect of increasing the need for mental health care services in Europe.
3.1.2 Countries Most Affected
Albeit devastating across many countries in Europe, the effects of the economic crisis were experienced disproportionately across different countries in Europe. Such varied impact is evident when exploring the economic crisis in terms of its manifestations and implications. For instance, a look at central government debts during the crisis reveals that the South European countries, Greece, Spain, Portugal, and Italy, were the most affected, with Ireland being the only other country outside South Europe that experienced similar levels of impact.38 Notably, Greece
and Ireland already had central government debts of more than 100% of GDP before the crisis, with Greece then experiencing an unmanageable spike to over 140% at the height of the crisis. Meanwhile, whereas Spain and Portugal’s debts were significantly lower in the pre-crisis period, at between 20% and 30% of GDP by 2007, the crisis saw their debts soar sharply to between 50 and 60% of GDP, as demonstrated in figure 3. Moreover, among all the aforementioned
countries regardless of debt levels in relation to GDP, a pattern of similar difficulties in attempts at reducing their financial dependence was observable.
Figure 3: Levels of national debt in Greece, Ireland, Italy, Portugal, and Spain, demonstrating sharp spikes owing to the economic crisis.39
Household incomes, inequality, real GDP growth patterns, and unemployment also constitute other markers of the countries most affected by the crisis. With Greece indicating that it could not finance its deficit, European politicians not only responded with bailouts, but also insisted that the country institute painful austerity cuts, which were soon to be necessary in other countries, such as Ireland, Portugal, and Spain.40 Austerity packages per household demonstrate
the severity, as seen in Greece (€5,647 or 11.1% of GDP per head), Ireland (€3,602 or 3.8% of GDP per head), Italy (€1,131 or 1.8% of GDP per head), Spain (€1,962 or 3.1% of GDP per head), and Portugal (€2,166 or 5.0% of GDP per head). These packages were significantly more stringent than in the likes of Germany (€283 or 0.4% of GDP per head).41 The impacts of severe
austerity measures were observable in the trends in household incomes and inequality, which also help highlight the most affected countries in Europe. In this case, the countries most affected remain consistent with the aforementioned observations, with Greece at 14%, Ireland at 7%, and Portugal at 7% suffering the largest reductions in average household income due to austerity measures. Meanwhile, Spain 5% and Italy 3% also experienced significant household income
39 Ibid., 1512. 40 John Authers, 2.
reductions. Additionally, the implementation of austerity policies led to a widening the rich-poor gap especially in South Europe, as reflected in the Gini index. In the 2000 to 2012 period, the Gini index for Greece rose from 33 to 34.3, while Italy from 29 to 31.9 and Spain from 32 to 35 also experienced similarly significant spikes in inequality. In contrast, Portugal managed to reduce inequality during the same period from 36 to 34.5 in terms of the Gini index, making it an exception in South Europe.42
Real GDP growth and unemployment also provides another dimension through which to explore the countries most affected by the economic crisis in Europe, whereby the dominance of South European countries is also observable. In terms of real GDP growth, many countries in Europe experienced significant contractions in GDP owing to the financial downturn. Between 2004 and 2009, Greece experienced a drop from 3.6% to -5.8%, Spain 2.0% to -4.8%, Ireland 3.4% to -7.6%, Italy 2.3% to -4.8%, and Portugal 1.6% to -3.2%.43 While other countries in
Europe also experienced significant contractions of their economies, the massive unemployment and job losses that occurred in the aforementioned countries demonstrate a pattern in which such countries were the most affected by the economic meltdown. Between the periods 2007-2008 and 2011-2012, Greece and Spain experienced severely high unemployment rates, followed by Portugal and Ireland, while Italy’s unemployment rates were comparable to the average of the European Union, as demonstrated in figure 4. Meanwhile, the 2012 to 2013 period also saw the likes of Greece (21.5% to 27.2%), Spain (24.1% to 26.7%), Italy (10.4% to 11.5%), and Portugal (15.1% to 17.5%) experience worsening unemployment rates, especially when compared to European averages of 10.3% to 10.9% unemployment rate and American averages at 8.2% to 7.6% unemployment rate over the same period.44
42 Ibid., 1513.
43 Veerle Buffel, Vera van de Straat, and Piet Bracke, 36. 44 Anna Zamora-Kapoor and Xavier Coller, 1514.
Figure 4: The sharp increase in unemployment rates in Spain, Ireland, Greece, and Portugal when compared to averages for the European Union during the economic crisis.45
Besides causing inequality and loss of household incomes, the aforementioned austerity policies and unemployment rates had additional deleterious effects in the respective countries, further signifying why these countries were the most affected. For instance, high unemployment had the effect of lowering consumption and reducing revenues in both the public and private sectors. At the same time, soaring unemployment sparked a vicious economic circle that led to heightened poverty levels, out-migration and the accompanying brain drain, and civil unrest, indicating sociopolitical consequences that accompanied the economic crisis.46 In South Europe,
the economic downturn led to a transformation of the traditional comprehension of political actors and institutions, with citizens in the most affected countries expressing heightened
disaffection toward traditional representative democracy and warming up to alternative forms of conducting politics. Manifestations of such political consequences include Spain’s 15-M,
Greece’s Golden Dawn, Italy’s 5 Star Movement, and Portugal’s Fuck Troika!, all of which illustrate sociopolitical discontent that emerged to express disagreement with how South European countries undertook the institutional management of the crisis.47 Notably, the
45 Ibid., 1513. 46 Ibid., 1514. 47 Ibid., 1413.
sociopolitical questions were more pertinent in South Europe, whereby while Ireland demonstrated a high level of acceptance of the new economic scenario, the likes of Greece, Spain, and Italy faced heightened mistrust to the extent of violent collective discontent in
Greece.48 Ultimately, the aforementioned observations indicate that shrinking Southern European
economies contributed to weakening democratic institutions and an unprecedented systemic crisis, further highlighting how the countries already identified as the most affected suffered additional severe sociopolitical consequences.
Unemployment and strict austerity policies also led to deleterious consequences in health and wellbeing, which in turn helps explore the countries affected most by the economic crisis. For instance, the adoption of stringent fiscal austerity caused a significant strain on their health-care systems in the likes of Greece, Spain, and Portugal.49 In turn, Greece and Spain experienced
a significant increase in the incidence of mental disorders, while Greece also experienced worsened self-reported general health and access to health-care services. In Greece, the
economic crisis contributed to deteriorated self-reported general health, heightened service user fees, declining hospital budgets, and worsened mental health care and outcomes. In Spain, the prevalence of mental health illnesses increased significantly among those attending primary care, especially for disorders such as mood, major depression, anxiety, somatoform, and alcohol-related problems. The heightened prevalence of mental disorders could be significantly traced to the combined risks of unemployment and difficulties with mortgage payments. In Ireland, Portugal, Italy, the economic crisis led to the reduction of the salaries of health professionals while also decreasing health coverage through instituting increased user charges for some health services.50 These observations reinforce the observations that South European countries and
48 Ibid., 1513-1514.
49 Marina Karanikolos, Philipa Mladovsky, Jonathan Cylus, Sarah Thomson, Sanjay Basu, David Stuckler, Johan P Mackenbach, and Martin McKee, 1323-1331.
Ireland constitute the countries most affected by the economic crisis, as captured by a variety of economic, sociopolitical, and health and wellbeing indicators.
3.2 Happiness Surveys
3.2.1 Information from the World Happiness Report and Eurobarometer
This subsection provides an overview of happiness surveys and their implications, with a focus on the World Happiness Report and Eurobarometer. The World Happiness Report is a landmark survey that ranks countries by their levels of happiness to capture a picture of the state of global happiness.51 The survey seeks to provide deep insights through strategies such as also tracking
the happiness of local and international migrants. Additional considerations may include variations of happiness around the world with gender and age. The rationale for the World Happiness Report lies in the observation that the modern age is characterized by stark
contradictions, whereby advances such as sophisticated technology and economic development are taking place while self-reported happiness stagnates amid heightened uncertainties and anxieties, decline in social trust, and all-time low confidence in governments.52 Altogether, such
contradictions translate to a reality of poverty, environmental degradation, anxiety, and unhappiness existing in the midst of great plenty. In appreciating the existence of external and personal features that determine unhappiness and wellbeing, the World Happiness Report notes that policymakers can focus on the relevant environmental factors that affect happiness,
considering that such external factors are changeable.53 This latter view demonstrates the
relevance of the World Happiness Report and other happiness and wellbeing surveys in the context of policymaking.
51 “Overview- WHR,” World Happiness Report, last modified 2018, http://worldhappiness.report/ed/2018/ 52 John Helliwell, Richard Layard, and Jeffrey Sachs, World Happiness Report (The Earth Institute, 2012), 3. 53 Ibid., 59-60.
Meanwhile, Eurobarometer is a key survey that tracks the evolution of public opinion among members of the EU, aiming to measure opinion trends in ways that help inform policy, decision-making, and evaluation of the EU’s efforts.54 Although Eurobarometer covers many
different dimensions with a focus on EU membership, including economic trends, its qualitative surveys explore the feelings, motivations, and reactions of selected groups in a way that can provide crucial information on aspects such as wellbeing. For instance, Eurobarometer identifies various factors deemed crucial in determining wellbeing, including considerations such as subjective wellbeing, education and intellectual development, economic and employment situation, health and nutrition, interpersonal relationships, cultural and spiritual activities, infrastructure, civic life, and the environment.55 Moreover, the survey also seeks to explore the
relative importance of the factors, as well as the contextual considerations that may determine variations of the relative importance attached to the different factors. In terms of the relevance of the Eurobarometer for the present inquiry, the survey conceives wellbeing as associated with economic or financial factors, psychological or personal factors, physical factors, and the environment, based on unprompted views from respondents. Additionally, subjective wellbeing has associations with quality of life and perceptions of happiness, which are some of the central considerations for the present study.56
The surveys can help determine the happiness levels and its relationship with incomes in the selected countries, Spain, Italy, and Greece, especially considering the possibility of
obtaining a longitudinal picture based on happiness and wellbeing reports over time.
Additionally, the usefulness of happiness surveys in policymaking also provides an opportunity to explore and evaluate responses by the various governments affected in light of the relationship 54 “Eurobarometer: What is it?” Eurobarometer, last modified 2018, http://ec.europa.eu/echo/eurobarometer_en 55 Eurobarometer Qualitative Studies, Wellbeing Aggregate Report: September 2011, (EU Commission, 2010), 7-10.
between the economic downturn and happiness levels. For instance, a study by Levinson demonstrates how happiness data can prove crucial in valuing and policymaking for public goods, using the example of air quality.57 In this case, the scholar collected data on self-reported
happiness as a function of respondents’ demographic characteristics and incomes alongside air pollution on the date and in the place of survey. With the findings indicating that happiness levels varied with the factors such as income and air pollution, the scholar could determine a marginal rate of substitution between income and air quality. In turn, the findings of the study could be used to provide crucial insights in government policies in aspects such as air quality, as well as the prioritization of government efforts, whether on economic development or public goods such as air quality.
In another study, the scholar explored the issue of happiness economics as a way of making governance decisions and prioritization through determining the effects of external factors on wellbeing.58 In deciding where to focus the efforts of government, the leadership faces
a situation in which it has to weigh the different influences on wellbeing, as well as attach values on one factor compared to another. The knowledge that external or environmental factors have a significant influence on happiness and subjective wellbeing provides opportunities for informed policymaking through collecting relevant data and instituting evidence-based solutions or policies. In such a context, the relevance of happiness surveys in supporting policymaking and governance is demonstrable. In yet another study, the influence of happiness surveys is readily evident in light of the use of happiness and subjective wellbeing data in stimulating the utilitarian political theory.59 In this case, happiness surveys provide statistically reliable measures of
57 Arik Levinson, “Valuing Public Goods Using Happiness Data: The Case of Air Quality,” Journal of Public Economics 96, (2012): 869-880.
58 Andrew J. Oswald, “How Much do External Factors Affect Wellbeing? A Way to Use ‘Happiness Economics’ to Decide,” The Psychologist 16, (2003): 140-141.
59 Grant Duncan, “Should Happiness-Maximization be the Goal of Government?” Journal of Happiness Studies 11, no. 2 (2010): 163-178.
happiness in correlation with a multiplicity of variables, including economic and non-economic factors. The implications of such a perspective pertain to the relevance of happiness research findings in informing happiness-maximization goals for public policy, whereby policymakers and members of the wider society have to deliberate on whether the goal of government should lie in happiness maximization. Overall, the aforementioned perspectives demonstrate the usefulness of happiness surveys in potentially shaping policymaking.
3.2.2 Relationship between Happiness and Income
Many scholars have paid attention to the relationship between happiness and income, with their findings illuminating a pertinent policy question and inspiring debates and deliberations. In one study, the scholar is adamant that the general finding from such inquiries is that increased wealth does not correlate with greater happiness beyond only modest levels, which informs the calls for governments to prioritize other social values beyond the focus on economic growth.60 The
scholar cites various well-being surveys around the world, which predominantly demonstrate diminishing returns to annual incomes above US$10,000. Moreover, upon statistically controlling for social and health factors that also correlate with affluence and subjective well-being, the impact of income on national well-being is not significant. An additional source of evidence on the topic cited by the study lies in aggregate happiness-survey scores in the US and Japan, where happiness levels have remained static despite decades of strong economic growth. Additionally, the study notes that self-reported happiness levels fail to increase into middle age even in cases where incomes and wealth increase. Instead, communities with the highest
happiness or subjective well-being levels are those with desirable health, effective sociopolitical institutions, trust, social cohesion, and minimal corruption rather than the wealthiest.
A time-series study of different categories of countries also supports the observation that incomes do not invariably have a positive correlation with happiness.61 In the study, the scholar
tracked the relationship between long-term GDP per capita growth rates and improvement in happiness for 37 countries, 17 of which were developed, nine were developing, and 11 were in transition. The scholars found no significant relationship between the two variables for the three groups separately, as well as for the 37 countries altogether. Additionally, the study sought to critic scholars arriving at the opposite conclusion, noting that such studies that reported a
positive relationship between happiness and income were actually conflating short-term positive associations arising from fluctuations in macroeconomic conditions with the desired long-term relationship. Ultimately, the findings indicated that the long-term relationship between happiness and income is nil.
Reviewing literature on the topic, Borrero, Escobar, Cortés, and Maya observe that evidence for the wealth-happiness relationship is mixed, which suggests that certain situational or individual factors account for variability.62 The scholars hypothesize that wealth is actually
positively related to happiness, specifically proposing that poverty and other adverse situations have a limiting effect on happiness. Another hypothesis posited by the four scholars is that the adverse effect of poverty on happiness is moderated by collectivist orientations in a society. To tests the aforementioned hypotheses, the scholars reviewed data on happiness, wealth, and culture collected from 197 countries. The findings supported the hypothesis on the adversity-happiness relationship, as well as the attenuating effect of collectivism on this relationship.
61Richard A. Easterlin and Laura Angelescu, “Happiness and Growth the World Over: Time Series Evidence on the Happiness-Income Paradox,” IZA Discussion Paper No. 4060 (Institute for the Study of Labor, 2009): 2-4.
62 Silvio Borrero, Ana Bolena Escobar, Aura María Cortés, and Luis Carlos Maya, “Poor and Distressed, but Happy: Situational and Cultural Moderators of the Relationship between Wealth and Happiness,” Estudios Gerenciales 29, no. 126 (2013): 2-11.
These findings demonstrate the mixed findings on the topic, as they are at odds with the findings of the two preceding studies.
Several other scholars have sought to explain the source of the lack of consensus on the relationship between happiness and income, providing various explanations for the issue. In one study, Kahneman and Deaton hypothesize that increase in incomes only improves evaluation of life rather than emotional wellbeing.63 After analyzing data from more than 450,000 respondents,
the scholars found that income and education were closely related to life evaluation whereas emotional wellbeing was instead predicted by factors such as health, loneliness, and care giving. Plotting against log income reveals that life evaluation rises steadily with income, while the positive association between emotional wellbeing and income only rises up to an annual income of $75,000, but no further. Meanwhile, the findings revealed that low income had the effect of exacerbating emotional pain resulting from misfortunes as divorce, loneliness, and ill health. As a result, the scholars concluded that high income may buy life satisfaction, but cannot buy happiness, whereas low income is related to both low emotional wellbeing and low life evaluation. In another study, Kushlev, Dunn, and Lucas also sought to explain the mixed
findings, taking the position that happiness and sadness are separate emotional states rather than diametric opposites.64 The scholars hypothesized that wealth may have a greater impact on
sadness rather than happiness. After reviewing data from 12,291 respondents, the findings demonstrated that higher income had an association with less daily sadness, but had no significant effects on daily happiness.
Considerations on referential income have also been employed in explaining the mixed findings between happiness and income, further illuminating the topic. In one study, the scholar 63 Daniel Kahneman and Angus Deaton, “High Income Improves Evaluation of Life but not Emotional Wellbeing,” Proceedings of the National Academy of Sciences 107, no. 38 (2010): 16489-16493.
64 Kostadin Kushlev, Elizabeth W. Dunn, and Richard E. Lucas, “Higher Income Is Associated with Less Daily Sadness but not More Daily Happiness,” Social Psychological and Personality Science 6, no. 5 (2014): 483-489.
explored the influence of a reference group’s income on individual wellbeing, employing self-reported measures of satisfaction with life to determine wellbeing.65 After reviewing the data, the
scholar concluded that a reference group’s income has equal importance as own income in determining individual happiness, whereby individuals are happier when their income is larger in comparison with a reference group’s income. Meanwhile, Oishi, Kesebir, and Diener reviewed data from the General Social Survey (1972 to 2008) in exploring the association between happiness and income.66 The findings demonstrated that respondents were averagely happier in
years characterized by less national income inequality when compared to those years characterized by more inequality, confirming the reference income perspective. The three scholars also found that the inverse relation noted between happiness and income inequality could be explained by perceived fairness and trust. Moreover, the aforementioned inverse association between happiness and income inequality was only applicable for lower-income respondents rather than higher-income ones.
In a similar study based in Europe, the scholars employed European Social Survey (ESS) data to explore the link between income and subjective well-being, examining the relative utility hypothesis.67 After collecting data from 19 European countries, the scholars found that whereas
income had a positive correlation with happiness and life satisfaction, reference income exerted a significant negative impact on individual well-being in line with the relative utility hypothesis. Upon focusing on some Eastern European countries, the findings demonstrated that reference income had a positive effect on subjective well-being. Interpreting these findings, the scholars concluded that reference incomes inform social comparisons contexts with stable income and 65 Ada Ferrer-i-Carbonell, “Income and Wellbeing: An Empirical Analysis of the Comparison Income Effect,” Journal of Public Economics 89, (2005): 997-1019.
66 Shigehiro Oishi, Selin Kesebir, and Ed Diener, “Income Inequality and Happiness,” Psychological Science 22, no. 9 (9): 1095-1100.
67 Guglielmo Maria Caporale, Yannis Georgellis, Nicholas Tsitsianis, and Ya Ping Yin, “Income and Happiness Across Europe: Do Reference Values Matter?” Journal of Economic Psychology 30, no. 1 (2009): 42-51.
employment, whereas they inform expectations about future status in relatively volatile environments.
3.2.3 Differences between North and South European Countries
A look at the differences in happiness, subjective wellbeing, or life satisfaction levels between Northern and Southern European nations can provide a preliminary view of the situation hypothesized from the economic crisis context. Here, an investigation by Christoph and Noll demonstrates that subjective wellbeing varies between South Europe and the rest of the EU, as captured in life satisfaction data.68 The study categorizes the sampled European countries into
Nordic ones entailing the social-democratic welfare states of Finland, Denmark, and Sweden, Central Europe ones entailing conservative states such as Germany, Austria, France, Belgium, the Netherlands, and Luxembourg, and the South European ones, namely Italy, Spain, Greece, and Portugal. Upon analyzing the subjective wellbeing levels across these countries, South European countries emerge lower than majority of their Nordic and Central Europe counterparts, with Denmark and Sweden topping the ranking while Greece and Portugal are at the bottom, as captured in figure 5. Moreover, only Spain scores slightly above Europe’s average from the South Europe cluster, with Italy, Portugal, and Greece all scoring lower than the EU average in terms of life satisfaction. Additionally, none of the countries in South Europe makes the top eight of the ranking, while the region contributes three of the bottom ranked four countries on the list. Further, a time series view reveals that South European countries have consistently lower life satisfaction than the EU average, as captured in data from 1991 to 2000, whereas a significant majority of the countries in the other regions has had consistently had better results (figure 6).
68 Bernhard Christoph and Heinz-Herbert Noll. “Subjective Wellbeing in the European Union during the 90ies,” Social Indicators Research 64, no. 3 (2003): 521-546.
Figure 5: General life satisfaction in European countries, showing South Europe lagging behind the other EU regions.69
