Happy Income Index
The Happy Income Index, developed by Aloys Prinz and Björn Bünger in their Living in a material world:Happy Income and Happy Life Years paper, is an new index proposed to complement existing measures of Well-being and Progress of societies. The index combines a measure of material conditions of living and a non-material, Subjective well-being measure. This index could be used, according to the authors, as a complementary cost-benefit analysis tool for evaluating effectiveness of public policies aiming at increasing Well-being. Furthermore, the index solves the Easterlin Paradox. According to the authors the problem with subjective measures is that the scale of measurement has an upper bound and no negative values are allowed. Typically, people are asked to rank their happiness or life satisfaction between 0 and 10. For example, people that have ranked themselves very highly already with low material standards of living are unable to show improved subjective well-being on such a limited scale. The understanding of Happiness varies between cultures and changes with time. Furthermore, research has shown that people adapt relatively easily to changed circumstances and thus improved material well-being is usually not accounted for in subjective surveys. Therefore, the concept of happiness is considerd an imprecisly defined concept and should be complemented by a well-defined concept such as GDP.
The index is constructed as follows:
Happy Income Indicator (HI) = Median equalised household net income (relative level indexed to 100) ∙ 0-1 happiness
The HI can be used to compare the montery well-being of jurisdictions. The Happy income index uses the median equalised household relative net income indexed to 100 and can only be used for comparisons between countries as it is dimensionless.
The authors compare the results from the Happy Income Index with the concept of Happy Life Years (HLY) developed by Ruut Veenhoven. The idea is to combine the quality of life (called happiness and measured on a continuous scale from 0 to 1) with the life expectancy at birth (measured in years), being together the number of years a person may be expected to enjoy the happiness of life. The authors use data from the European Quality of Life Survey. The comparison bettwen the HLY and the HI show the rankings of the countries are relatively similar but not identical
Living in a material world:Happy Income and Happy Life Years, March 2009, A. Prinz and B. Bünger, CAWM –Discussion Paper No 15.