Preferences and Subjective Satisfaction: Measuring Well-being on the Job for Policy Evaluation

Abstract

Behavioural welfare economics has raised doubts about the use of revealed preferences as an indicator of 'true' individual well-being. Subjective satisfaction ('happiness') measures have become increasingly popular, as they seem to avoid paternalism while at the same time not being dependent on observed choice behaviour. We argue that there is a clash between using subjective satisfaction and respecting preferences, because the former also depends on aspirations. We propose the equivalent income indicator as an alternative cardinalization of the utility function. It does respect preferences but does not depend on aspirations. We apply our general ideas to one specific policy domain: monitoring job quality as individual well-being on the job. Our empirical results about the quality of jobs for school-leavers in Flanders show that the choice of a specific indicator of well-being is highly relevant from a policy point of view. The most popular measures that are in use now (the paternalist equal weights-indicator and subjective job satisfaction) may be misleading if they are not complemented by information about the other indicators.