March 26, 2008
Happiness is “lost in transition”
Richard Easterlin - he of the Easterlin Paradox - has a new working paper [pdf] out:
In the transition from socialism to capitalism in Eastern Europe life satisfaction has followed the V-shaped pattern of GDP but failed to recover commensurately. In general, increased satisfaction with material living levels has occurred at the expense of decreased satisfaction with work, health, and family life. Disparities in life satisfaction have increased markedly with those hardest hit being the less educated and persons over age 30; women and men have suffered about equally. The asymmetric response of life satisfaction to decreases in GDP in transition countries and increases in GDP in non-transition countries is arguably due to loss aversion.
Here is an earlier essay I produced about the economics of happiness.
Coming for Central Europe (Prague, Czech Republic), I don’t find such results surprising. There are two generations whose lives were turned upside down. They had their social status, they were OK with life that sucked, but was pretty stable. Suddenly, this was all gone. The short period of hope came, but it left them with unemployment and inflation that eat away their savings.
Posted by: Jan | March 27th, 2008 at 6:04 am | Report this commentRetired people suffered because they could not have saved any money (most savings lost their value shortly after the revolution). Now, they have small pensions and increasing living costs.
Other generations (people around 40 in 1990) lost because they were too old to adjust to the change. Their human capital was suddenly utterly useless. If they lost the job in the transformation, chances are they did not find a new one and if they did, it was worse then before.
I’m not saying most of them are not happy with freedom and democracy. They probably are. But they also paid a very high price.
Just as an anecdote. Starting salaries of people leaving universities in their mid twenties are easily twice or three times higher than wages of people in their mid fifties. As I’m going to be one of them (I’m finishing my phd), it is hard for me to explain to my mother that after 20 years of her careful, hard and long work, she earns a third (or less) of what I will probably start with. Despite the fact that it makes perfect economic sense, because my human capital is probably in fact worth three times more than hers. But that does make her feel any better, because she did not do anything wrong. She just had a very bad luck, as had almost everybody in her generation.