Sunday, December 28, 2014

28/12/2014: Unhappy Cities


According to a new paper published by NBER, "there are persistent differences in self-reported subjective well-being across U.S. metropolitan areas, and residents of declining cities appear less happy than other Americans. Newer residents of these cities appear to be as unhappy as longer term residents, and yet some people continue to move to these areas." The question is why?

"While the historical data on happiness are limited, the available facts suggest that cities that are now declining were also unhappy in their more prosperous past. One interpretation of these facts is that individuals do not aim to maximize self-reported well-being, or happiness, as measured in surveys, and they willingly endure less happiness in exchange for higher incomes or lower housing costs. In this view, subjective well-being is better viewed as one of many arguments of the utility function, rather than the utility function itself, and individuals make trade-offs among competing objectives, including but not limited to happiness."

While this sounds very plausible, an interesting follow up question is: what happens to new movers when they get better offers elsewhere or once they retire or their employment terminates? Do these newcomers leave? Do they attempt to secure new employment in the area? Do they engage in entrepreneurship whilst in their employment or after?

The reason why these questions are pivotal is that human capital is like other forms of capital: once it is mobile, it moves to higher returns on investment, but it also is footloose. Since investment in human capital does not end with current stage employment, loss of past human human via exit from the area is also a loss of future human capital increases. Securing human capital is about as important as attracting it.

For the paper quoted, see: Glaeser, Edward L. and Gottlieb, Joshua D. and Ziv, Oren, Unhappy Cities (July 2014). NBER Working Paper No. w20291. http://ssrn.com/abstract=2471184
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