Inclusion and wellbeing

The overarching good, according to economists, is utility, by which they mean wellbeing.

However, most economists think of utility as ordinal, and the only cardinal measure they have is therefore real income. By contrast, psychologists think of wellbeing as itself cardinal. They measure it by questions like “Overall, how satisfied are you with your life these days” (0= Not at all satisfied, 10- Very satisfied). And they find in multiple regression that this depends on much else besides real income.

Our team at LSE recently analysed the findings from major longitudinal surveys in Britain, Germany, Australia and the US.1 The findings were similar in all these countries, and Figure 1 gives the results of a cross-sectional multiple regression equation for Britain. It shows how each factor contributes to the inequality of wellbeing, holding the other factors constant. A parallel analysis shows how much each factor contributes to the prevalence of misery and the ranking of factors is the same for each analysis.

Figure 1. What matters for wellbeing?

Thus, as Figure 1 shows, more of the misery in our country is due to diagnosed mental illness than to any other factor – and physical illness is also important. Next come human relationships, at work and in the family, and only then comes income.

An alternative approach to the issue of what matters is simply to ask people “How much do you worry about the following issues (0 – never, 10 – a lot)?”. The results for a representative UK sample are shown in Figure 2. They broadly confirm the ranking of priorities shown in Figure 1. So we need a new, broader concept of deprivation – the inability to enjoy life for whatever reason, rather than just because of poverty. The same applies to our concept of inclusion.

Figure 2: “How much do you worry about the following issues (0 never, 10 a lot)?”

As regards the quality of work, the index in Figure 1 is a weighted average of 12 characteristics, of which the top 3 are (in order) interesting job, interpersonal relationships, and pay. In other studies, a sense of meaning and purpose in life (including for work) come through as very important determinants of life satisfaction. And when it comes to unemployment the Figure 1 results imply that the non-pecuniary cost of being unemployed (in units of wellbeing) is about 3 times the pecuniary cost of being unemployed.

How does all this relate to the impact of trade upon wellbeing? I am no expert but let me illustrate from three papers that I like to take together. These show the following.

1.     Import competition from China reduced manufacturing (and other) employment.2

2.     Reduced manufacturing employment reduced local overall employment and raised opioid use and deaths.3

3.     Reduced manufacturing employment increased the prevalence of extreme distress.4

Taken together these three papers show that import competition led to extra distress.

For the sake of clarity, let me explain that the last of these papers used the BRFSS (Behavioural Risk Factor Surveillance System) which asks each year “For how many days during the past 30 days was your mental health not good?”. It defines those who replied “30 days” (in the last 30) as being “in extreme distress”. Thus defined, the proportion of US adults in extreme distress rises from 3.6% in 1993 to 6.4% in 2019. In an individual pooled cross-section regression, the probability of being in distress rose by 0.5 percentage points for each 10 percentage point fall in state-level manufacturing employment. It rises by 18 percentage points if the individual says she is ‘ unable to work’.

One final point: death. If wellbeing is what matters, it also matters how long the wellbeing lasts. So the simplest utilitarian welfare function focuses on the product of average wellbeing and life-expectancy. If trade is affecting deaths (as the second paper suggests), this has to be included in its measured effect on social welfare.

1. Clark et al (2018).
2. Acemoglu, D., Autor, D., Dorn, D., Hanson, G. H., & Price, B. (2016). Import competition and the great US employment sag of the 2000s. Journal of Labor Economics, 34(S1), S141-S198.
3. Charles, K. K., Hurst, E., & Schwartz, M. (2019). The transformation of manufacturing and the decline in US employment. NBER Macroeconomics Annual, 33(1), 307-372.
4. Blanchflower, D. G., & Oswald, A. J. (2020). Trends in extreme distress in the United States, 1993–2019. American Journal of Public Health, 110(10), 1538-1544.

Republishing guidelines

The Centre for Inclusive Trade Policy believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.