Prof.dr. Robert A.J. Dur is professor of Economics of Incentives and Performance at Erasmus University Rotterdam and a research fellow of the Tinbergen Institute, CESifo Munchen, and IZA Bonn. His research interests include personnel economics, organizational economics, and behavioral economics. He works on both theory and empirics.
The Returns to Happiness
It is no news that economists study the determinants of happiness. A big literature in economics has developed about the causes of happiness, see for example this review. This literature is still growing, as consensus has not been reached, not even about the question whether a higher income increases happiness (see for example this and this recent study). As yet, the consequences of happiness have received much less attention. A recent paper, that is to appear in the Journal of Labor Economics, takes a first step. The authors ask the question: If people are happier, does that make them more productive? In the world of management consultants and HR-managers this is an important question. Following the example set by Google, the happiness of employees is on the agenda of many organizations. Of course, employers always have been interested in this. If you wish to attract good employees and keep them, an employer cannot afford to not worry about the well-being of his employees. The innovation is that there might be an additional reason to try and make your employees more happy, namely an increase in productivity. The paper –written by three economists of Warwick- reports the results of four different lab experiments. In one of the experiments subjects are made ‘happier’ by showing them cheerful movies. In a different experiment subjects are treated to chocolate or a drink (without caffeine or alchohol). In comparison to the control group, without movie or treat, the subjects felt happier and they performed about 15 to 20% better. In another experiment the researchers compared people who had recently experienced a tragic event to people who did not. The first group reports to be a lot unhappier and is also less productive, about 10%, in comparison with the second group. In all these experiments productivity was measured by having participants do simple math exercises, where each correct answer yields money for the participant. What are the implications of this study for practitioners? According to the researchers, we need to be cautious. Each of the four experiments is susceptible to criticism on different grounds and the same applies to an earlier related study of psychologists with similar results. Blindly following the results of these studies (or recommendations of HR-consultants in this direction) is thus inadvisable. The value of the study lies in putting happiness as a causal factor (rather than as an outcome only) on the agenda of economists. Further research, in real business settings, should show whether there is a substantial return to happiness in practice. This blog appeared earlier on www.economie.nl in Dutch.