Employee satisfaction and firm value: A global perspective
Alex Edmans25 July 2014
Happy workers might well be more productive than unhappy ones, but high worker satisfaction could also be a sign that workers are overpaid or underworked. This column examines the link between worker satisfaction and future stock returns in 14 countries. In most but not all countries, employee satisfaction is associated with higher future stock returns. Abnormal returns to companies with high worker satisfaction are significantly increasing in the flexibility of their countries’ labour markets.
Is employee satisfaction good or bad for firm value? While it may seem natural that companies should do better if their workers are happier, this relationship is far from obvious. The 20th-century way of managing workers (e.g. Taylor 1911) is to view them as any other input – just as managers shouldn’t overpay for or underutilise raw materials, they shouldn’t do so with workers. High worker satisfaction may be a sign that workers are overpaid or underworked. However, the world is different nowadays.
Using happiness scales to inform policy: Strong words of caution
Timothy N. Bond, Kevin Lang04 July 2014
Self-reported measures of happiness are growing in popularity as alternatives to GDP. This column presents a novel statistical critique of the validity of comparing such measures across groups. Since monotonic transformations of individuals’ happiness levels can reverse average happiness rankings between countries, no meaningful comparison can be made without assumptions on the distribution of happiness.
Economists have long known that GDP is an imperfect measure of well-being. In addition to missing nonmarket transactions, it ignores environmental degradation, the quality of social interactions, and many other outcomes of economic interest. But at least since Easterlin (1974) some economists have gone further, and challenged the view that per capita GDP and well-being are positively related.
As a measure of economic activity, GDP is imperfect, but no more so than any single indicator of the whole economy. Yet public policy debate about the economy is often focused on GDP growth to the exclusion of other important considerations. This Vox Talk argues the case for a ‘dashboard’ of alternative indicators that, in addition to measuring economic activity, could also capture social welfare, sustainability and the benefits of innovation.
Study after study has shown that those who live with children are less satisfied with their lives than those who do not. Is there something wrong with these empirical analyses? Or is it that happiness measures are unreliable? This column argues that the results are correct but that comparisons of the wellbeing of parents and non-parents are of no help at all for people trying to decide whether to have children.
It is a commonplace that new parents are overwhelmed by a “tsunami of love” when they first meet their dependent offspring. Older children, though often a source of irritation and worry, are also a source of joy, and there are few parents who can even bear to think of a world without their children. Yet, study after study has shown that those who live with children are less satisfied with their lives than those who do not; Hansen (2012) and Stanca (2012) are recent surveys. How can this be?
Criticism of Gross Domestic Product (GDP) as an indicator of the health of the economy has grown in recent years, in part because of a new focus on measures of subjective well-being or ‘happiness’. This column argues that the debate needs to distinguish between the different purposes of measurement: economic activity, social welfare, and sustainability are distinct concepts and cannot be captured by a single indicator. There are good arguments for paying less attention to GDP and more to indicators of welfare and sustainability, but it would be a mistake to adjust or replace GDP.
The debate about how best to measure economic activity dates back to well before the ‘invention’ of GDP by Richard Stone and others during the Second World War (Stone 1947). The earliest attempt was William Petty’s 1665 estimate of income and expenditure in England and Wales, followed by a variety of other approaches in the 18th and 19th centuries. By the 1930s, partly in response to the demand from policymakers for a better handle on what was happening in the economy, the current approach to national income was taking shape (Coyle 2014).
The link between higher national income and higher national life satisfaction is critical to economic policymaking. This column presents new evidence that the connection is hump-shaped. There is a clear, positive relation in the poorer nations and regions, but it flattens out at around $30,000–$35,000, and then turns negative.
A commission on the measurement of economic performance and social progress was created on the French government’s initiative. Since 2008, this distinguished group of social scientists has put subjective well-being into the limelight as a possible supplement to traditional measures of development such as GDP (Stiglitz et al. 2009). The British government has also shown considerable interest in developing a subjective well-being measure in recent years as an instrument for policy.
Federica Liberini, Eugenio Proto, Michela Redoano15 November 2013
Retrospective voting – voting for incumbents if one’s situation has improved under the politician’s watch – is a well-established pattern. This column shows that this pattern also applies when ‘improvement’ is measured by a subjective measure of well-being. Among the stark results discussed is the finding that newly widowed women are 10% less likely to be pro-incumbent than the control group.
Humans tend to go through midlife crises regardless of context. So too, it appears, do apes. This column draws on recent research showing apes’ midlives to be, like humans’, dogged by the same pattern of unhappiness.
Happiness is approximately U-shaped across a person’s life. It has been known for more than two decades by behavioural scientists and wellbeing researchers that human happiness and mental health appear to follow a large, looping, U-shaped trajectory through the main part of people’s lives (cf. Feddersen, Metcalfe, and Wooden 2012). This statistical pattern has been found in dozens of countries.
The costs of Hurricane Sandy: Life satisfaction as an alternative to GDP
John Feddersen, Robert Metcalfe, Mark Wooden02 November 2012
Hurricane Sandy destroyed an massive amount of US wealth, but the impact on human wellbeing surely goes far beyond any dollar figure. This column argues that the ‘subjective wellbeing’ literature can inform policy choices in the area of emergency response. Since the ‘happiness’ cost of short-term weather changes far exceeds that of long-term changes, prevention policies are likely to yield a higher payoff in terms of life satisfaction than rebuilding policies with equivalent financial payoffs.
Early forecasts suggest that Hurricane Sandy won’t influence US GDP much, positively or negatively. For example, IHS Global Insight estimates a reduction of 0.5% in the final quarter of 2012, while Capital Economics believes the rebuilding effort may actually increase GDP.
This should be good news, but for the fact that GDP, when considered in isolation, is a misleading measure of the total cost of a natural disaster. Others share this view. For example, life satisfaction expert Justin Wolfers recently tweeted:
Aspirations, wellbeing, risk-aversion, and loss-aversion
Kees Koedijk, Meir Statman, Rachel Campbell30 March 2012
Does more money always make you happy? This column argues that financial wellbeing is distinct from income. People with low income can enjoy financial wellbeing as high as people with high incomes as long as their aspirations do not exceed their incomes.
“Rich or poor, it’s always nice to have money”, as the old saying goes. But rich is relative, as US Congressman John Flemming recently demonstrated in an on-the-air MSNBC interview. He complained about taxes that were so high that “by the time I feed my family, I have maybe $400,000 left over”.