Elsevier

China Economic Review

Volume 48, April 2018, Pages 83-101
China Economic Review

Subjective well-being in China, 2005–2010: The role of relative income, gender, and location

https://doi.org/10.1016/j.chieco.2015.12.010Get rights and content

Highlights

  • Women, urban residents, and people with higher income are happier in China.

Abstract

We use data from two rounds of the Chinese General Social Survey (CGSS) to study the determinants of subjective well-being in China over the period 2005–2010 during which self-reported happiness scores show an increase across all income groups. Ordered probit regression analysis of well-being reveals large influence of gender, rural residency, and household income. After controlling for demographic attributes, health status, unemployment status, number of children, agricultural hukou (household registration identity) and educational attainment, household assets, the influence of past and future income, and province dummies, we find that women, urban residents, and people with higher income are happier in China. More schooling, better health, and being employed are positively and significantly correlated with well-being. Sub-sample analysis reveals that the rich only care about relative income whereas the effect of absolute income dominates in case of the poorer section. The influence of absolute income is larger among women compared to men and in turn explains why women, despite being poorer, are happier in China, conditional on socioeconomic differences. On the other hand, rural residents are poorer than urban residents so that conditional on having the same income, there is no rural–urban happiness gap. Our results suggest that while further decline in poverty will enhance well-being in China, policies that reduce rural–urban and gender inequalities are also likely to boost well-being.

Introduction

There is an ongoing debate over trends in and the determinants of subjective well-being in China. Income matters for happiness by helping to meet basic needs as well as sustaining well-being in times of economic shocks and crises (Johnson & Krueger, 2006). Yet people's perceived sense of happiness does not appear to have responded positively to improvements in macroeconomic conditions and a visible decline in income poverty. The country saw a four-fold increase in the level of per capita consumption and an unprecedented economic growth during 1980 to 2010. Despite the rapid rise in real income per capita and the human development index in recent years, subjective well-being appears not to have risen (Knight & Gunatilak, 2014). According to some studies, China has suffered a significant decrease in happiness during the last 20 years in the World Value Survey data (Easterlin, McVey, Switek, Sawangfa, & Zweig, 2010).1 Equally, Appleton and Song (2008) document low levels of life satisfaction in urban China based on survey data for the year 2002. Knight, Song, and Gunatilaka (2009) argue that economic variables are relatively unimportant as determinants of happiness in China and instead emphasise psychological and sociological factors. Together, the evidence on China from the 1990s fits the “Easterlin paradox” in that economic growth and improved physical conditions did not add to the quality of life and average happiness.2

However, Clark and Senik (2011) caution that the idea that growth will increase happiness in low-income countries cannot be rejected on the basis of the available evidence.3 They argue that time-series data do not reflect the same relationship because cross-country time-series analyses are based on aggregate measures, which are less reliable than those at the individual level. Moreover, using individual-level data from the US, Kahneman and Deaton (2010) argue that emotional well-being satiates with high income while subjective evaluation scores do not. This suggests that even if money does not buy happiness, the lack of it is associated with emotional pain. For these reasons, more analysis of subjective measures of well-being using individual/survey data is necessary to document and build-up the evidence on the issue.

The empirical literature on the economics of subjective well-being has grown rapidly, and much is known about the determinants of happiness in China based on survey data. However, earlier studies on China have been at times narrow in terms of study population, for instance, focusing on some specific groups such as the elderly and urban residents (Knight, J. and Gunatilaka, R., 2010, Smyth, R., et al., 2010, Wang, H., et al., 2013).4 While there are studies galore exploring the absolute income effect, the number of studies that additionally test for and report relative income effects is small.5 Moreover, a handful of high-quality studies that look at relative income effect focus only on urban residents (e.g., Appleton, S. and Song, L., 2008, Liu, Z.Q. and Shang, Q.Y, 2012, Smyth, R. and Qian, X.L., 2008, Wang, P. and VanderWeele, T.J., 2011), rural areas (e.g., Knight et al., 2009) or ethnic minorities (e.g., Mishra, Nielsen, & Smyth, 2014).

There are three additional possible explanations for why findings on the relationship between income and happiness in China are mixed in the earlier studies. First, economic growth has also seen a sustained rise in income inequality and falling absolute incomes at the bottom end of the income distribution in rural areas (Benjamin, Brandt, & Giles, 2005). This may have reduced happiness because individuals prefer equal society, i.e., inequality belongs in their well-being function.6 In addition, in the absence of social mobility, the poor in China will view current inequality as a predictor of future relative poverty and hence remain dissatisfied in an unequal community. Therefore, the poor may feel unhappy despite a rise in their absolute income in recent years. The dissatisfaction caused by growing inequality may attenuate the positive effect of income on happiness. Indeed some early studies (e.g., Brockmann, Delhey, Welzel, & Yuan, 2009) describe happiness decline in China over the period 1990–2000 as the perceived loss of well-being among “frustrated achievers.”7 At the same time, if social mobility is high, inequality (or higher income of the peers) can lead to a positive effect on subjective well-being (Graham & Felton, 2009).8 Second, the labour market in China has seen rising unemployment rates and decreasing labour force participation over the last two decades despite sustained GDP growth (Liu, 2012). Contrary to published government data, independent assessment confirms much higher unemployment rate and lower work participation rate,9 particularly among women, in recent years (Feng, Hu, and Moffitt, 2015). This may weaken the average relationship between happiness and rising per capita income. Third, the observed relationship between happiness and income could be driven by a “focusing illusion” (Deaton, 2008).10 In periods of continuous economic growth, increases in income may generate no increase in happiness.11 Income may be assessed relative to others or to one's past income (Clark, Frijters, & Shields, 2008). In such settings, appropriate controls for social comparisons (e.g., relative living standard compared to others in the locality as well as compared to one's past) are important, but specification of the happiness function in earlier studies vary in this respect.

For the above reasons, the exact effect of income on subjective well-being in China remains a contested issue in the literature. Higher income aspirations can reduce people's utility leaving the relationship between income and happiness unchanged if, following processes of adaptation and social comparison, income aspirations increase with people's income as well as income of others in the community. Individual well-being depends on the absolute level of income and consumption as well as its value relative to one's aspirations and income of others in the community. Moreover, it is possible that the happiness–income relationship has changed in recent years in a way not captured by older surveys and studies.12 Indeed, a recent study by Easterlin, Morgan, Switek, and Wang (2012) concludes that the long-term movement of life satisfaction scores in China during 1990–2010 has followed a U-shaped pattern, showing a sign of recovery in recent years.13 China's fast-growing and increasingly unequal economy provides an ideal context to re-assess the importance of absolute income as the fundamental determinant of happiness. Therefore, in this paper, we revisit the debate over absolute vs. relative incomes as correlates of subjective well-being using two rounds of the Chinese General Social Survey (CGSS) data spanning the period 2005–2010.14 Since the significance of aspiration, relative income, and labour market changes (such as unemployment rate and gender gap in wages) are likely to vary by location, we study happiness separately for rural and urban residents as well as men and women. We therefore contribute to the literature by documenting heterogeneous gradients of income–happiness in China. Other specific contributions include further evidence on a modified version of Easterlin's hypothesis—we confirm the existence of a relationship between income and well-being among those whose basic needs have not been met, but showing that beyond a certain income threshold, further income is uncorrelated to well-being.

The rest of the paper is organised as follows. Section 2 discusses the methodology while the sample and data are described in Section 3. The main results are presented in Section 4, followed by the conclusion in Section 5.

Section snippets

Methodology

Subjective well-being is widely considered as a satisfactory empirical approximation to individual utility in the economics literature (Blanchflower, D.G. and Oswald, A.J., 2008, Di Tella, R. and MacCulloch, R., 2006, Kahneman, D. and Krueger, A.B., 2006, Oswald, A. J., 1997). In keeping with existing studies in the literature, we estimate the happiness function for China in the following form:Wi*=a1+lnyib1+Pic1+Zid1+uiwhere following Kahneman and Deaton (2010), ln(yi) is the logarithm of per

Data and sample description

Data used in this study come from the recent Chinese General Social Survey (CGSS), a well-known nationally representative large data collection project in China.25 The 2010 CGSS covered 11,783 households (38.71% of them from rural area) in 31 provinces (excluding Hong Kong, Macau, and Taiwan), while the 2005 round included

Full sample analysis

Table 5 reports estimates of the happiness function for the 2010 and 2005 CGSS data. The first column presents estimates of well-being function obtained from a parsimonious model (Eq. (i)) where we only control for the respondent's age, age-squared, gender, ethnicity, marital status, educational attainment, number of children, household per capita income, and location. The second column includes controlling for health, agricultural hukou, and unemployment status. Column 3 expands the well-being

Conclusion

Whether or not improvement in a country's macroeconomic conditions and the subsequent growth in private income impact its citizens' happiness is an old question in the economics literature. While for developing countries most researchers find that income matters for happiness, evidence on the importance of relative income remains mixed. There is also an ongoing debate on the magnitude of the income–happiness gradient and on happiness trends over time in China. Despite the fall in poverty and an

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    This study is the outcome of the “The China Model: Implications of the Contemporary Rise of China (MOHE High-Impact Research Grant)” project UMC/625/1/HIR/MOHE/ASH/03. Data analysed in this paper come from the research project “Chinese General Social Survey (CGSS)” of the National Survey Research Center (NSRC), Renmin University of China. We appreciate the assistance in providing access to the data by NSRC. We also thank participants in the Chinese Economists Society (CES) 2015 conference for helpful comments and two anonymous referees of this journal for very helpful comments. The views expressed herein are the authors' own.

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