The unemployed are generally significantly and substantially less satisfied with their lives than the employed. This relationship tends to be stronger in high-income countries where there are sharper differences between employment and unemployment. In studies that look at within-person changes over time, unemployment typically reduces wellbeing by at least 0.6 points (out of 10).

Studying plant closures allows researchers to distinguish between endogenous and exogenous effects of unemployment. Workers who lose their jobs due to reasons outside of their control are generally more dissatisfied, although the effect of job loss remains negative and statistically significant for both groups.

The negative wellbeing impacts of unemployment can also spillover onto the general population – and this cause more total loss of wellbeing than the direct effect on the unemployed. Longer periods of unemployment can have scarring effects with long-lasting negative implications for wellbeing even after those affected have returned to work.

The psychosocial effects of unemployment on wellbeing are greater than the effect of lost income. Policy approaches targeting unemployment are therefore likely to be most conducive to wellbeing if they are able to protect and provide for the psychological and social benefits of work, as opposed to simply providing income support.

The Easterlin paradox states that (1) in a given context richer people are on average happier than poorer people, but (2) over time greater national income per head does not cause greater national happiness. Statement (1) is certainly true. As a benchmark, a unit increase in log income raises wellbeing by 0.3 points (out of 10). The share of the within country variance in wellbeing explained by income inequality is 3% or less. So income is in no sense a proxy for wellbeing.

Across countries the effect of a unit change in log income per capita (other things equal) is also around 0.3 points of wellbeing. But over time the effect of economic growth on wellbeing remains unclear. Studies of individuals show that in most cases a rise in other people’s income reduces your own wellbeing. From a policy point of view, this means that, when a person decides to work harder, she imposes a cost on other people. The natural way to control this is a negative externality is by corrective taxation.

Wellbeing rises in booms and falls in slumps – partly due to unemployment but also due to loss-aversion. So economic stability is vital.

Wellbeing is mainly studied by asking people questions. The most common question is about life-satisfaction and replies satisfy standard tests of reliability and validity. Using the Gallup World Poll, the World Happiness Report finds that on a scale of 0–10, 1 in 6 of the world’s population score 3 of below and 1 in 6 score 8 or above – a huge inequality in the quality of life. Another approach is to measure how people feel from moment to moment – their ‘affect’. This can be done by bleeping people in real time or asking retrospective questions about yesterday. This approach is best for measuring the effects of short-term experiences, but less so for measuring a person’s underlying wellbeing. The book rejects the third so-called ‘eudaimonic’ measure of wellbeing, on the grounds that virtue is the means to an end (and not the end itself).

People’s wellbeing is experienced by how far their needs are satisfied. This depends on what they bring to the table (their behaviour, their thoughts, and their genes) and by the social environment in which they live. This determines the structure of Parts II and III of the book. Part IV deals with the role of government.

This concludes our brief initial overview of the main causes of high and low wellbeing – and of the huge variation in wellbeing in the world. All the findings are cross-sectional, with time series and experiments left to later chapters. The findings of this chapter provide the framework for the rest of Part III of the book – starting with personal factors and working outwards to those relating to whole communities.

Within a country (if it is advanced), the main factors explaining the variance of wellbeing (and the prevalence of misery) are in rough order of importance: mental illness; physical illness; having work and the quality of that work; having a partner; family income; and education.

The variation of wellbeing across countries is largely explained (in rough order of importance) by: income; health; social support; personal freedom; trusting social relations; and generosity.

Predicting whether a child will become a happy adult is not easy. But wellbeing in childhood is a better predictor of satisfaction in adult life than the child’s academic success is. And as the next chapter shows, both schools and parents have big effects on children’s wellbeing.