Happiness and its Effect on Economic Development and Business Profitability

by Michael Lenhardt April 25 2010, 20:39

Introduction

“Policy decisions at the organizational, corporate, and governmental levels should be more heavily influenced by issues related to well-being––people’s evaluations and feelings about their lives.”[1]  This recent trend in economic development literature, that policy decisions at the government and corporate level should be influenced not by profit maximization but their effect on people’s subjective well-being, is gaining acceptance in the real world.  Empirical research and analysis shows that policy aimed at improving workplace happiness not only has an impact on employees subjective feelings of well-being, but also improves worker productivity and by extension corporate profitability.    

How Do Happiness Studies Work? 

Because “happiness” is not a quantifiable variable, there are numerous ways in which researchers control for the subjective aspect of one’s reported happiness.  A typical happiness survey consists of simply asking respondents, “all things considered, how happy are you with your life?”. [2]  To control for the fact that a respondent might have gotten into a car accident on the way to work, or that a respondent got a parking ticket that day, which may skew the believability of a response, researchers readminister the survey at random intervals over a period of time. [3] What they find is that respondents generally report the same level of happiness over a long period of time.  Another way to control for the problems associated with happiness studies is to ask the friends and family of the respondents how happy they feel the respondent is with their lives.  The idea is that friends and family will have an insight into how happy a respondent is, and researchers find that friends and family tend to report the same level of happiness as did the respondent.[4]  Finally, researchers also study things like suicide rates for example, and find that only those respondents reporting a low level of happiness will commit suicide in the future. [5]  These findings support the conclusion that respondents give truthful and insightful responses to the question “how happy are you?”.  

Important Findings of Happiness Studies 

People with a higher education report significantly higher levels of happiness than those with less education. [6]  People over 60 report being happier than people of middle age.[7]  And married couples are happier than singles. [8]   

But for the purposes of this paper, one of the most important finding is that although higher levels of income are positively correlated with happiness, this positive relationship has it limits.  After an income of approximately $20,000, the statistical relationship between income and happiness is negligible. [9]  In other words, marginal increases in income after $20,000 only slightly increases happiness.[10]  Also, research in this field has found that although GDP per capita has increased 400% since 1960, the average American does not report high levels of happiness than Americans in the 1960’s, even though Americans today are four times as wealthy in real terms. [11] These findings suggest that striving to be the wealthiest nation in the world should not be the basis of our policy decisions if our ultimate goal is happiness and life satisfaction.  Other countries are taking note of this phenomenon, and France for example has created The Commission on the Measure of Economic Performance and Social Progress which is engaged in researching levels of happiness and developing policy initiatives aimed at creating sustainable national well-being.[12]  

Happiness and Workplace Productivity 

Looking on the bright side, the implication of this literature is not that we must choose between being rich and unhappy versus poor and happy.  In fact, implementing workplace policies that foster happiness may increase productivity thereby increasing wealth.  Policies aimed at profit maximization may be counterintuitive in that they decrease productivity and limit a business’s ability to grow and be profitable.  One academic study found that managers with average salaries of about $65,000 cost their organizations roughly $75 a week per person in lost productivity if they are "psychologically distressed."[13]  Providing treatment to depressed workers has been shown to increase productivity, which added up to an estimated annual value of $2,601 per depressed full-time employee. [14]  This treatment also resulted in a 28% lower rate of absenteeism.[15]  Also, a national survey of 1,792 adults conducted by Peter D. Hart Research found that 63 percent trust employers "just some" or "not much" when it comes to treating employees fairly.[16]  The bottom line is that unhappy workers who feel they are not treated fairly have no incentive to be productive and will only do just enough to not get fired.  

How Can Happiness and Productivity Be Improved?

Employee morale can be increased in the most obvious ways, yet are sometimes ignored by managers and higher level executives.  For example, treating an employee with respect, getting to know employees, creating an employee recognition program, and having regular meetings to address questions or concerns an employee may have significantly improve morale and happiness, and therefore improve productivity. [17]  The problem in the business community is that these methods are not seen as profit maximizing tools, but rather side issues dealt with on a human resources level.  If corporations made these sorts of programs as important as their other profit maximization business dealings, they could increase workplace productivity and profitability.  Staff that enjoy good working relationships, receive proactive career development, feel valued by the organization and well treated in times of change, are likely to be contributing the most to a business.  Furthermore, they will be ambassadors for the organization, sending out positive messages to the outside community and enhancing the employer brand.” [18]

Conclusion 

Happiness is more than just an ideal emotion with no place in the business world.  Research has shown that happiness at work dramatically effects productivity.  Policies centered on strict rules, output, and profit maximization may be counterintuitive in that they displace employee happiness, negating the possible benefits of such programs.  In addition, improving employee happiness is inexpensive and can be attained simply by treating employees with respect and recognizing their successes.  By implementing policies aimed at promoting workplace happiness, corporations and other businesses will not only improve the workplace environment, but also their bottom line.    



[1] Ed Diener & Martin E. P. Seligman, Beyond Money: Toward an Economy of Well-Being, 5 Psychol. Sci. Pub. Int. 1 (2004). 
[2] Id. 
[3] Id. 
[4] Id. 

[5] Daly, Mary C., Daniel J. Wilson. “Happiness, Unhappiness, and Suicide: An Empirical Assessment.”

Federal Reserve Bank of San Francisco Working Paper, 2008-18.

http://www.frbsf.org/publications/economics/papers/2008/wp08-19bk.pdf 
[6] “Happiness, Economy, and Insitutions”, Institute For Empirical Research in Economics – University of Zurich. 

http://www.iew.uzh.ch/wp/iewwp015.pdf

 
[7] Id. 
[8] Id. 
[9] Easterlin, R. A., “Will Raising the Incomes of All Increase the Happiness of All?”, Journal of Economic Behaviour  and Organization, vol. 27(1), pp. 35-48. (1995). 
[10] Id. 
[11] Id.  

[12] Joseph E. Stiglitz, Amartya Sen, Jean-Paul Fitoussi, “Report of the Commission on the Measurement of Economic Performance and Social Progress”. 2009.

 

[13] Diane Stafford, “Study Finds That Happy Workers Are More Productive Workers”. St. Petersburg Times. April 10, 2009.

http://bx.businessweek.com/health-and-wellness/view?url=http%3A%2F%2Fc.moreover.com%2Fclick%2Fhere.pl%3Fr1916735415%26f%3D9791

 

[14] Lloyd deVries, “Happy Workers, Better Workers”.  2004. CBSNews.com

http://www.cbsnews.com/stories/2004/11/24/health/webmd/main657624.shtml

 

[15] John Reh, “Which are More Productive, Happy Workers or Sad Workers?”.  November 27, 2004. 

http://management.about.com/b/2004/11/27/which-are-more-productive-happy-workers-or-sad-workers.htm

 

[16] Kent Hoover, “Survey Finds Number of Unhappy Workers on the Rise”.  Washington Business Journal.  September 7, 2001.

http://washington.bizjournals.com/washington/stories/2001/09/10/newscolumn3.html

 

[17] Lea Hartog,”15 Ways to Boost Employee Moral”.  HRWorld.com. April 28, 2008.

http://www.hrworld.com/features/15-ways-boost-employee-morale/

 

[18] “Happiness at Work Index – Research Report 2007.” Chiumenta London.

http://www.arboraglobal.com/documents/Happiness%20at%20Work%20Index%202007.pdf

 

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