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Nov 18, 2008

Faster Economic Growth Hurts Life Satisfaction in Latin America and the Caribbean

Costa Ricans have the highest life satisfaction and Haitians the lowest in ground-breaking study on quality of life perceptions

People in countries that have experienced fast economic growth in recent years are less satisfied with their lives than people in nations with slower growth rates, according to a new study by the Inter-American Development Bank (IDB). The study is the latest edition of the Development in the Americas series, the IDB’s flagship publication.

Satisfaction in Trinidad and Tobago, Chile, Peru and Ecuador, countries with the fastest growth in the region in recent years, is lower than in nations such as Guyana, El Salvador, Paraguay and Guatemala, whose economies showed little or no growth.

The study, an unprecedented look into people’s perceptions in the region, uses data from the Gallup World Poll and information commissioned by the Bank to complement the survey. Citizens of Latin American and the Caribbean were asked how they perceived key aspects of their lives including the quality of education, healthcare, housing and employment, providing some surprising and on occasion counter-intuitive responses.

Satisfaction rates are not necessarily highest in the wealthiest countries or in those with the best social services or the fastest growth. Countries in the region with high per capita income, such as Brazil, Argentina, Chile and Uruguay showed moderate levels of life satisfaction, trailing countries with lower per capita income such as Guatemala, Colombia and Jamaica.

“Overall, Latin Americans are satisfied with their lives, but interestingly, people in some of the poorest countries are the most optimistic while citizens of some of the most-developed countries are the most pessimistic,” said IDB President Luis Alberto Moreno.  “Not surprisingly, people with higher incomes are more satisfied with their lives than those with lower incomes, but economic growth actually breeds discontent rather than greater happiness, at least in the short run.”

Perceptions can be affected by cultural differences and a country’s recent economic progress. The study shows that fast economic growth will prompt people’s aspirations for a better life style to rise even faster. The rapid changes in the economy, and not just the level of income or consumption, end up affecting the level of satisfaction in the short run.

“Governments that focus their policies exclusively on growth are bound to lose support in the long run if they do not respond to the higher expectations that accompany growth in areas ranging from education and health to income distribution,” explains Eduardo Lora, IDB’s chief economist and coordinator of the study. “The difficulty lies in responding to these demands without killing growth.”

Life satisfaction in Latin America and the Caribbean was calculated using data from the Gallup 2007 World Poll. Participants in the poll were asked to rate their life satisfaction from zero to ten, with zero being the lowest rating possible.

Gallup surveyed more than 40,000 people in 24 countries in Latin America and the Caribbean between November 2005 and December 2007. The margin of error of the poll varies for each country and ranges from 3.1 percent to 5.1 percent.

                      Satisfaction and Economic Growth

Countries

Life Satisfaction (Scale 0 to 10)

Average GDP Per Capita Growth*, 2001-2006

Costa Rica

7.4

2.8

Panama

6.8

3.0

Mexico

6.6

1.2

Venezuela

6.5

2.0

Belize

6.4

2.4

Guatemala

6.3

0.3

Colombia

6.2

2.4

Jamaica

6.2

1.3

Brazil

6.2

1.5

Guyana

6.0

1.2

Argentina

6.0

2.0

Trinidad and Tobago

5.8

8.8

Chile

5.8

3.1

Uruguay

5.7

1.8

Bolivia

5.4

1.3

Peru

5.3

3.5

El Salvador

5.3

1.1

Paraguay

5.2

0.8

Honduras

5.1

2.0

Ecuador

4.9

3.9

Nicaragua

4.9

1.9

Dominican Republic

4.9

3.0

Haiti

3.8

-1.7

IDB calculations based on Gallup World Poll 2006 - 2007 and World Development Indicators.

*GDP Per Capita growth in terms of Purchasing Power Parity for 2000

Latin America and the Rest of the World

This year’s Development in the Americas, entitled “Beyond Facts: Understanding Quality of Life,” reveals that people’s perceptions on education and employment in the region may differ widely from reality.

Data from the survey, for example, shows that most people in Latin America and the Caribbean are satisfied with the level of public education although students from the region have consistently performed very poorly in international student assessment tests.

Venezuela, Uruguay, Paraguay, Bolivia, Honduras and Dominican Republic, for example, showed  education satisfaction levels that were higher than Japan’s, although students from those countries reported scores 35  percent lower on average than Japanese students, according to the study.

The report also shows that 81 percent of the people in the region are satisfied with their jobs, more than workers in countries with high-income per capita such as Japan and South Korea, where 78 percent of people polled said they were satisfied with their work. Satisfaction is high even though a quarter of the population in the region doesn’t earn enough to lift itself out of poverty or the proportion of self-employed people or those with unpaid jobs has increased.

The region showed high levels of life satisfaction in general compared with other regions of the world, even after income differentials are accounted for (see graph below).  Latin America on average reported a level of life satisfaction of 5.8, more than Europe and Central Asia, but less than the 7.5 reported in North America and 7.2 for Western Europe.

Nearly 80 percent of the people in the region said they are satisfied with their housing situation, more than people in Europe and Central Asia, for example. Overall 85 percent of the people polled in the region said they are satisfied with their health, comparable to most regions, but higher than in Eastern Europe and Central Asia.

Satisfaction Ranking

Citizens of Costa Rica, Panama, Mexico and Venezuela have the highest level of life satisfaction in the region. Ecuador, Nicaragua, Dominican Republic and Haiti - the only country in the survey whose economy shrank for the period - had the lowest level of satisfaction (see graph below).

           

People in countries with greater economic success are often less satisfied with their health, housing and labor condition and educational services provided by the government. Most of the countries with poorer economic performance, excluding Haiti, are the most satisfied.

Chileans are among the least satisfied with their health, education, housing and employment conditions.  Citizens of Costa Rica are among the most satisfied with such services.

On an individual basis, poor citizens in each country reported higher levels of satisfaction in education, housing, employment and health, an indication that they may have lower aspirations than the rich, the study found.

Beyond Income

Several factors other than income growth can affect people’s satisfaction with their life and country. Some of them offer little scope for public policy such as family relationships, friendships and religious beliefs. Others, however, can be the subject of government action.

“This report can be a great resource for governments in the region now facing tough decisions to cut spending because the financial crisis is reducing economic growth and hurting tax revenue,” said President Moreno. “Governments can better decide their priorities if they understand how people think.”

The survey shows that life satisfaction in the region can be greatly reduced if people’s incomes are not stable enough to ensure they can purchase basic food staples, maintain their health, keep their assets and afford housing.

“The finding increases the urgency for governments to maintain or even expand conditional cash transfers of income to the poor, particularly in countries suffering from a sharp drop in remittances from their migrant workers,” Moreno said.

Another key finding of the study is related to satisfaction with work. What matters the most for people in the region is to have a job that provides independence and is a place where they feel their opinions are heard. Social security and other labor benefits play a smaller role in job satisfaction levels.

The results defy the conventional wisdom about what is important for workers, offering governments an opportunity to rethink labor and social security policies during periods of slow economic growth.

Crime is another key concern among citizens in Latin America and the Caribbean. Sixty percent of people polled in the region – the highest percentage among all regions of the world - said they don’t feel safe walking alone at night.

Higher unemployment triggered by slower growth may fuel conflict in cities– home for 77 percent of the population in the region – increasing the need for local governments to adopt policies that reduce violence and increase public safety, said Lora.

Satisfied with your Life? Eduardo Lora, Chief Economist
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    Satisfied with your Life?

    In its flagship publication "Development in the Americas," the IDB unveils surprising findings on the quality of life in the region.
  • Satisfied with your Life? (3:02) Video Icon
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    Eduardo Lora, Chief Economist

    "Development in the Americas" publication
  • Eduardo Lora, Chief Economist (4:23) Video Icon

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