Monday, December 16, 2013

Happiness in Israel's Society

Israel is ranked as one of the happiest countries in the world according to a number of reports, such as the OECD and the World Happiness Report. Within Israel itself, there are understandably wide differences between the Ultra-Orthodox, religious Jews, secular Jews and Arabs.

A post published today on the site Marginal Revolution by Rabbi Dr. Asher Meir from Business Ethics Center of Jerusalem, caused some debate over the relationship between income and happiness in Israel. According to Dr. Meir, there is a strong relationship between earnings and life-satisfaction for all population groups, with the exception of Haredim.

The argument goes that while most people seek higher income to increase their level of happiness, the Haredi (ultra-religious) population are "threshold earners" - i.e. they don’t strive to earn more than some basic level of income. The evidence for this assertion is based on the fact that, according to the annual Social Survey, Haredim report the same level of happiness regardless of their income. For everyone else, however, wealthier people tend to say they are happier than poorer people. Even when controlling for other factors (such as age, sex, health etc.) the result remains the same.

Leaving aside all the potential issues with the Social Survey itself, there is major flaw in this analysis due to the reliance of declared income. This is because the Ultra-Orthodox rely on a range of sources for their consumption (e.g. donations, government welfare, non-income goods etc.) which would not be reported in the income section of the survey.

The Social Survey also asks the following question: Are you managing to cover all your monthly household expenses (from 1 to 4)? Clearly, one would expect that those on higher income are better able to cover their expenses than those on low income. Indeed, for all population groups there is a very strong correlation between the two. However, for Haredim there is barely any relationship between their income and their ability to cover expenses. This indicates that their reported income in the survey does not actually reflect their real income.

We can, therefore, examine the relationship between happiness and income (as measured by ability to cover expenses) for each of the population groups in Israel. Given the small data sample, I used a combined dataset from 2010-12. The results clearly indicate that there is a statistically significant relationship between income and happiness even for Haredim.

What about controlling for other factors, including age, sex and health? The results remain the same, income has an impact on happiness for all population groups. Specifically, income has the highest effect on happiness for Arabs, followed by secular Jews, religious Jews and Haredim. Another interesting point to note; Arab and Ultra-Orthodox women are happier than their male counterparts, while mainstream Jewish men are slightly happier than women.

IMF Concludes Assessment of Israel's Economy

The IMF concluded its assessment of the Israeli economy today, with a brief summary statement. The full report will be published sometime in the coming weeks.

No big surprises so far, but worth noting a few issues:
  • The Israel economy is performing rather strongly with growth of 3.5% expected this year. Without the discovery of large gas reserves, the economy would have grown by 2.5%.
  • Concern over rising house prices in Israel which, according to the IMF, is driven by constraints in supply rather than a bubble (i.e. not enough houses being built);
  • The government has been able to cut spending even faster than its own target;
  • Finally, the summary highlights the importance of "addressing low labor participation rates of Haredi and Israeli Arab communities". The full report will hopefully provide some further details;