OECD Life Satisfaction Index - What makes people happy?

Recently, OECD published its life satisfaction index across its member countries. How's Life?: Measuring Well Being gives an overview of the OECD Better Life Index methodology, which is focused on households and individuals rather than aggregate economic conditions, and on well-being outcomes as opposed to well-being drivers. In particular, life satisfaction measures how people rate their general satisfaction with life on a scale from 0 to 10. The surveys show that Hungary, Portugal, Russia, Turkey and Greece have a relatively low level of overall life satisfaction while  Denmark, Norway, the Netherlands and Switzerland have a high level of overall life satisfaction. 201205242132.jpg

In addition to life satisfaction, OECD survey also captures various indicators under the topics of housing, income, jobs, community, education, environment, civic engagement, health, safety, and work-life balance. For instance, the housing topic includes the rooms per person (average number of rooms shared by person in a dwelling), dwellings with basic facilities (percentage of people with indoor flushing toilets), and housing expenditure (housing expenditure as a percentage of disposable household income) indicators. In contrast, the jobs topic includes the employment rate (percentage of people currently employed in a paid job), long term unemployment rate (percentage of unemployed people who have been actively looking for a job for over year), personal earnings (average annual earnings for a full-time employee), and job security (share of employment with a tenure less than 6 months) indicators. 201205242205.jpg The chart on the left shows the indicator values for Hungary. In general, Hungarians are less satisfied with their lives than the OECD average. 65% of Hungarians have more positive experiences (feelings of rest, pride in accomplishment, enjoyment, etc) than negative ones (pain, worry, sadness, boredom, etc) on a daily basis in contrast to the OECD average of 72%.

As the chart shows Hungarians feel safe, are happy with the water and air quality, find their work-life balance acceptable, have a strong sense of community, and are happy with the general quality of the education. For instance, 89% of Hungarians believe that they know someone they could rely on in time of need. Yet in life satisfaction, Hungary scores the lowest.

Referring back to the chart, the scores for housing, jobs, civic engagement, and health for Hungary are lower than the OECD average while income is considerably lower than the OECD average. In Hungary, the average person earns about $13K a year, less than the OECD average of $22K a year. It seems like the low life satisfaction score for Hungary is connected to low living standards stemming from sub-par income levels coupled with a lack of jobs. For instance,  around 55% of Hungarians aged 15 to 64 have a paid job, well below the OECD employment average of 66%.

In contrast, sense of community is the lowest score for Turkey. For instance, 69% of Turks believe that they know someone they could rely on in time of need, lower than the OECD average of 91%. Is there a correlation between life satisfaction and indicators for living conditions and quality of life? If yes, does the correlation hold across the OECD countries?

201205242219.jpgThe OECD Web site has a mixer tool that lets a user to select the relative rankings of the indicators and analyze the ranked list of countries based on these preferences. The customized index enables the comparison of well-being across countries based on personal preference of the importance of 11 topics the OECD has identified as essential, in the areas of material living conditions and quality of life.

While the OECD mixer is a nice tool for engaging readers, as a modeler, we see the life satisfaction sentiment indicator as an output while the rest of the indicators (housing, income, jobs, etc.) as inputs. In other words, we believe that the input indicators drive people how people feel about their life experiences. To test this hypothesis, we performed a correlation analysis between the life satisfaction index and the rest of the indicators in order to understand which factors contribute the most or the least to the life satisfaction sentiment. The correlation analysis is shown on the right.

In terms of topics, life satisfaction has high correlation with income, jobs, housing, health, low correlation with education and no correlation with safety. In terms of individual indicators, room per person has the highest correlation with life satisfaction while job security, housing expenditure, employees working long hours, educational attainment, years in education, student skills, consultation on rule making, air pollution, homicide and assault rate indicators have very low correlation with life satisfaction.

The indicators under each topic show some interesting results. For the jobs topic, while employment rate, personal earnings, long term unemployment rate indicators are correlated with life satisfaction whereas job security is not. Similarly, for the environment topic, while water quality has a high correlation with life satisfaction, air pollution does not.

It would be interesting of comparison if there was a similar survey for non-OECD countries. Perhaps the OECD country values are dominated by the population's desire for the ability to collect as many material possessions as possible. Relatively poorer country values may not follow this correlation.