What makes us happy (and can policy help)?

In the lead-up to New Zealand's first Wellbeing Budget, former Reserve Bank chairman Arthur Grimes, now Professor of Wellbeing and Public Policy at Victoria University of Wellington, looks at what makes our lives happy or unhappy.

In this series of monthly Wellblogging columns, I have so far concentrated on how wellbeing can be used to guide public policy. This is relevant in the light of the 2019 Wellbeing Budget to be delivered in May.

For the first column this year, I will change tack. I will instead look at research that seeks to understand the key factors that make most of us happy (or unhappy). Some, but certainly not all, of these factors may be influenced by policy. Others are up to the individual, family, whānau and community to enhance.

I will concentrate on seven aspects that Richard Layard – a leading researcher into the “economics of happiness” – has identified as being “the big seven factors affecting happiness”. He outlines these in his (very readable) book, Happiness: Lessons from a New Science. In this research, happiness (or subjective wellbeing) is measured using survey evidence on people’s reported ‘happiness’ or their reported ‘overall satisfaction with life’.

Each factor is discussed below. The effects of each are considered after controlling for the other six factors and for people’s personal characteristics such as age, gender and ethnicity. At the close, I will make some observations about how policy might influence some of these factors.

Family relationships

Research across many countries and across many cultures shows that the quality of family relationships is one of the most important factors affecting personal wellbeing. Married people tend to be a little happier than people who are cohabiting.

There is then a big jump downwards in measured happiness to people who are widowed, divorced or never married.

Finally, those who are separated – which is likely to be a more recent occurrence than divorce – are least happy of all. The effect on happiness of being separated has been estimated in one study to be four times as severe as losing one-third of family income.

Financial situation

People need money – and they like more of it!

People in richer countries tend, on average, to be happier than people in poorer countries. At the individual level, virtually all studies across all cultures show that richer people tend to be happier than poorer people in the same country.

But while happiness increases with income (and wealth), the biggest gains from more income are seen for those with low incomes. Some research shows happiness levels off at very high incomes – e.g. earning $3 million a year doesn’t bring any more happiness than earning $2 million a year – but that is something most of us don’t have to worry about.


We may not always enjoy work, but mostly it’s better than the alternative of having no job. Research consistently finds people who are (involuntarily) unemployed are much less happy than those who have a job.

Research in Germany even shows having a ‘poor quality’ job, such as serving at a burger joint, provides greater satisfaction than having no job at all. People who are in insecure employment (e.g. many workers in ‘the gig economy’) have happiness outcomes somewhere between those in secure employment and those who are unemployed.

There is one exception to the finding that those in secure jobs are happier than others: retired people are generally the happiest of the lot. This implies happiness (in or out of work) may depend in part on societal expectations of who “should” be in work. Once the pressure is off to work, people seem to enjoy themselves even more.

Community and friends

Just as family is important, so too are having friends and living in a community that cares about others. One aspect of the latter is the quality of ‘social capital’. Individuals who live in places in which people trust each other and where people volunteer to help others are happier than those in places with lower social capital.


Ill health can be a major cause of reduced happiness. While there is some evidence people’s happiness levels adapt to accidents (e.g. losing a limb in a motorbike crash), those who have a chronic illness tend to remain less happy than others.

The effect is particularly acute for those with mental illness, which takes a greater toll on individual happiness than does physical ill-health. As with the other ‘big seven’ factors, the greater impact on happiness of mental relative to physical health holds across different cultures (including for Māori).

Personal freedom

People who live in nations with limited freedoms tend to have sharply reduced happiness levels relative to people in less authoritarian (more liberal) countries. Similarly, lack of freedom for particular groups (e.g. restrictions on women’s opportunities) tends to reduce happiness of the affected groups. Quite simply, freedom is a hugely valuable contributor to people’s satisfaction with their lives.

Personal values   

A range of personal values affect people’s happiness levels. On average, people who are religious tend to be happier than non-religious people, at least in many societies. Whether this is due to a direct effect of being religious or to an indirect effect of higher social capital through religious observance is an open question.

Other aspects of personal values are also associated with higher levels of happiness. For instance, those who volunteer in the community not only raise others’ happiness but are also happier themselves.   

Can policy do much about these factors?

Given these ‘big seven factors’, can policy assist in raising happiness? It certainly affects some of the factors.

Stable economic policies that promote a growing economy both assist the chance to gain full-time work and raise incomes. Both these outcomes raise happiness. Indeed, in a recent book, Stubborn Attachments, economist Tyler Cowen argues that policies that sustainably raise the rate of growth have the greatest effect on long-term happiness of all public policies. To consider the contrary position, imagine if we in New Zealand still had the same standard of living we had in 1919 (poorer than the average person in China today) – while the rest of the world had become richer.

Policy can also help to influence health outcomes. The evidence from Richard Layard and others is that efforts to improve mental health are especially in need of a boost. This is consistent with one of the five main priorities signalled for New Zealand’s 2019 Wellbeing Budget.

Possibly the easiest – as well as vitally important – aspect policy can influence is personal freedom. Some governments around the world have recently curtailed personal freedoms to the detriment of their populations (the list of countries is unfortunately too long to mention here). Others have enhanced freedoms both nationally and for certain population groups: the legalisation of gay marriage in New Zealand and elsewhere is one such example.

It is vital those interested in raising wellbeing keep insisting on maintaining and enhancing personal freedoms.

And one last note: For those who noticed there was no Wellblogging column in January, the reason is I was enjoying time with family, friends and community – all of which enhanced my own personal wellbeing!

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