STOCKHOLM SCHOOL OF ECONOMICS IN RIGA

RĪGAS EKONOMIKAS AUGSTSKOLA

WHAT MAKES LATVIANS HAPPY?

IMPLICATIONS FOR PUBLIC POLICIES

Authors:
Aisma Vītiņa
Andis Orbidāns

Supervisor:
M.Phil.,PhD (Cantab.) Roberts Ķīlis

March 2008
Riga
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Abstract
This paper conducts an econometric investigation into what makes Latvians happy and what
possible implications for public policies might be derived. Namely, the purpose of this paper
is dual.
Firstly, the relationship between GDP and satisfaction with life in Latvia is
determined by analyzing time series data. Afterwards, using data on 809 individuals provided
by research agency SKDS profound analysis of factors influencing the level of life
satisfaction is presented. The factors are divided in five groups – personality factors, socio-
demographic factors, economic factors, cultural factors and eventually institutional factors. In
order to precisely determine the magnitude of impact that the most important factors have on
life satisfaction a joint regression model is designed.
Secondly, the study aims to investigate whether results obtained could be transformed
into practically applicable implications for public policies in Latvia. Hereby, by exploring
Economies of Happiness practices in other countries it is demonstrated that implementation
of suggested policies has been increasing, especially in the case of the UK. In addition, based
on obtained findings, several plausible public policy implications for Latvia have been
proposed. In addition, an example of very practical policy implication has been developed in
order to demonstrate how an implication could be put into effect.
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Table of Contents
Introduction................................................................................................................................1
Review of Literature..................................................................................................................2
Methodology..............................................................................................................................6
Variables................................................................................................................................8
Indices................................................................................................................................9
Joint Regression Variables...............................................................................................10
Data Description...................................................................................................................11
Regression Results...................................................................................................................12
Genes/Personality factors.....................................................................................................13
Socio-demographic factors...................................................................................................15
Economic factors..................................................................................................................16
Cultural factors.....................................................................................................................16
Institutional factors...............................................................................................................17
Joint regression.....................................................................................................................17
Interpretation of Results...........................................................................................................19
Joint regression.....................................................................................................................21
Discussion and Implications....................................................................................................24
Principle Discussion.............................................................................................................26
Example of Practical Implications.......................................................................................27
Conclusions..............................................................................................................................29
Limitations and Further Research............................................................................................31
WORKS CITED.......................................................................................................................34
Appendix I................................................................................................................................38
Appendix II..............................................................................................................................40
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Introduction
It is no secret that GDP has, for many decades, been a commonly used and well-recognized
measure of economic performance, economic growth, and progress (Beyond GDP, 2007).
Yet, it was back in 1974 that Richard Easterlin raised the first concerns upon the
trustworthiness of GDP as a welfare measure. The research indicated that, whilst the values
of GDP have skyrocketed over periods after WW2, the well-being and happiness of the
population in the US has stagnated (Easterlin, 1974). This pioneering study has provoked a
wave of new inquiries upon the trustworthiness of GDP, and nowadays, notable academics,
such as Richard Layard and Bruno S. Frey, are, in fact, advocating the view that GDP is a
“hopeless” measure of welfare (Layard, 2003).
At the same time, economic theory has long been familiar with such terms as “utility”
and “maximizing utility”, which being re-defined in different words, translates into
happiness. Thus, one of the standards for a good society, and good public policies that foster
the well-being of the society, are the ones that maximize the satisfaction with life of the
citizens (Veenhoven, 2005). This is why instead of trying to boost the GDP by any means
possible, good public policies should instead aim at increasing the happiness among its
citizens. To do so, the factors influencing the happiness of the citizens the most have first to
be discovered, in order to make any sound public policies that would eventually bring the
most happiness and well-being to its people (Frey and Stutzer, 1999). This is also the aim of
this paper, focusing particularly on a more specific region that is also more comfortable for
the authors, namely, Latvia. International comparisons have also been made in the field of
Happiness Economics (Layard, 2003); nevertheless, by choosing only one region, the authors
have eliminated the comparison bias among different cultures, as well as made sure that the
data collected has been reliable. Thus the research question reads as follows: What makes
Latvians happy? Implications for public policies. As one can see, the paper has a dual
purpose. The first part of the paper will focus on establishing the relationship between GDP
and life satisfaction, as well as factors influencing the level of life satisfaction shall be
identified. The other part will explore a completely different area – application of the results
obtained, where possible directions with regards to public policies shall be developed.
This research question might be particularly relevant in Latvia in the context of recent
social and political events, when the exceptionally rapid growth of GDP (Latvijas Statistika,
2007) has been accompanied with dissatisfaction of the people in Latvia, which resulted in
demonstrations leading to overthrow of government. However, according to the conventional
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theories of measuring welfare, such discrepancies between GDP and overall happiness could
not have occurred.
In order to determine what are the reasons leading to such inexplicable relationship
between GDP growth and happiness we will perform profound analysis consisting of two
parts. The first part will present comparison between time series data of GDP and happiness
assessment of Latvians. The second part will aim to identify specific factors affecting the
satisfaction of life in Latvia by conducting econometric investigation. This encompasses, in
particular, estimating connection between happiness and four sets of factors possibly
affecting standards of living. These sets are demographic factors (age, gender, education etc),
social environmental factors (aspects of relationship with people around us), physical
environment factors (living region, living-space etc) and, lastly, personal factors (political
activeness, emotional states, attitudes etc.). Mainly, the data on the four factor sets will be
obtained from SKDS survey on values and lifestyle of Latvians. Thereafter, based on the
results obtained, possible directions for public policy implications shall be proposed, and to
demonstrate the applicability of the findings, a very practical example of one of the proposed
implications will be developed, consulting with experts and relevant literature.
Review of Literature
To start with, the origins and development of economics of happiness shall be investigated,
followed by an overview of some more contemporary researches done on the topic, mostly
focusing on those concerning attempts to identify the factors that affect the
happiness/satisfaction with life of the people (please note that terms ‘happiness’ and ‘life
satisfaction’ shall be used interchangeably in this paper, yet, unless indicated specifically, the
underlying is life satisfaction, or in other words, subjective well-being). And lastly, an
overview of what has been done in Latvia in the area of economics of happiness shall be
discussed.
It all starts with the notion of ‘utility’, which traditionally in the microeconomics
perspective has been an objective measure, based on the observable choices individuals make
(Varian, 2002), depending solely on tangible and quantifiable things, such as goods and
services, and leisure. The preferences of the individual concerning one bundle of goods over
another are then exhibited from the individual’s behavior, comprising a utility function –
merely a number that does not have any additional substantive meaning whatsoever
(Powdthavee, 2007). And the utilitarian idea of ‘cardinal utility’ – measurable and
comparable utility scales among individuals – was being rejected as ‘unscientific’, since there
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was no apparent way of objectively comparing utility scales among individuals, e.g., the
marginal satisfaction of an increase in income (Robbins, 1938). Henceforth, the modern
economic thought has rejected the concept of measurable utility in favour of the ordinal one,
the revealed preference theory.
Yet the most recent trends in economic theory point out a resurrection of the
measurable utility concept, more specifically, measuring utility in terms of happiness and/or
satisfaction with life (Powdthavee, 2007). It is due to the fact that the revealed preference
theory has proven to be insufficient and not to comply with the reality of the at times
irrational individuals’ behaviour, in many cases fuelled by one’s relative standing on the
income hierarchy (Frank, 1985). Moreover, as Powdthavee (2007) reasonably points out, it is
probably impossible to understand human happiness without listening to what the people
themselves have to say. Besides, the measuring of peoples’ happiness is also the central
principle of the ‘utilitarian’ moral philosophy, ‘rule-utilitarianism’ to be more precise
(Veenhoven, 2005) that suggests providing greatest happiness for greatest number of people
to be the ultimate model of society policy makers should aim at.
Once the measurements of subjective life satisfaction have been acknowledged to be
useful in economic researches, one might wonder how exactly subjective happiness can be
measured. The array of answers found in various sources of literature is very wide – after all
happiness measures have been used by psychologists for a long time already (Powdthavee,
2007), but it is only now that it is also being used for economic researches. Being an intimate
factor as it is, one’s perception of personal well-being cannot be determined by public
observation. This is why individual’s subjective opinion is being asked. The questions could
concern single- or multiple-item questions on how one evaluates one’s state of
happiness/well-being/satisfaction with life. The World Value Survey uses a single-item
question sounding as follows: “Taken all together, how happy would you say you are: very
happy, quite happy, not very happy, not at all happy?” Each response is being appointed with
1 to 4 points so that numerical scale could be used (Powdthavee, 2007). Among slightly more
sophisticated techniques, one could mention the ones captured in real time (Csikszentmihalyi,
1990), as well as in the form of surveys. The Experience Sampling Method involves usage of
a palmtop several times a day for the sake of immediately answering certain questions.
Kahnemann et al. (2004) have proposed a very similar technique, the Day Reconstruction
Method, which requires the respondents to write a diary where the summary of the day and
intensity of the feelings are being noted down.
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Moving on to the pioneers of the Happiness Economics field, one must first of all pay
a tribute to Richard Easterlin, an economist who proved the purely economic measure of
welfare – GDP - being misleading. In his research papers not only the non-existence of
correlation between rise in GDP and rise in well-being of people has been revealed (Easterlin,
1974) by explicitly demonstrating the tremendous rise in the GDP of the United States of
America being accompanied by in fact a fall in peoples’ happiness and life satisfaction;
Easterlin has also contributed to the research in the area of establishing factors that determine
peoples’ happiness, e.g., in his paper “Life Cycle Happiness and Its Sources: Intersections of
Psychology, Economics, and Demograhpy” (Easterlin, 2006) that highlights the fact that the
well-being of people is a net result of objective and subjective circumstances in their lifetime
This now leads us to the next part of the Review of Literature – the factors influencing
happiness/satisfaction with life as proposed by other researches. The factors identified by
Richard Layard should be pointed out as the first ones. Work, family and health are the most
influential factors regarding satisfaction of life (Layard, 2003). Concerning the work factors -
being unemployed, having an unstable position, witnessing the unemployment rates raise or
inflation rates soaring – all of those have a significant negative influence on overall
perception of well-being; whereas income accounts only for a relatively miniscule change in
the happiness perception. Next, the personal life – not surprisingly, being divorced, separated
or widowed have a high negative effect on happiness perception; yet again income being
relatively less of a factor. And, of course, health problems also account for a substantial
decrease in overall well-being rating, by far exceeding the effects of income. Freedom,
religion, trust and morality are also mentioned by Layard as being important determinants of
happiness – one’s personal freedom, faith in some higher powers, trusting people around you
and believing that people around you are of high moral standing also adds to one’s happiness
perception. The key point of all those factors being: it is by far not all about money.
Among other researchers that have worked in the area of Happiness Economics, one
must mention the works of, Andrew Oswald (e.g., “Happiness and Economic Performance”)
that suggests another approach to increasing welfare in rich countries, rather than just some
more economic growth, Rafael Di Tella (e.g., “The Macroeconomics of Happiness”), as well
as researches of Robert MacCulloch, Andrew Clark, and Paul Dolan. Here it is also worth to
mention David Kahneman and his research on subjective well being indicators and
measurement of such indicators (2006).
Bruno S. Frey and Alois Stutzer in their paper approve that higher income level is not
highly correlated with happiness (1999). They state that there are three sets of sources of
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individual well-being - personality and demographic factors, micro and macro level
economical factors and institutional conditions. Particular attention is paid to the latter set,
which includes such factors as direct democracy (via initiatives and referenda) and of federal
structure (local autonomy). In the end, the authors find out that there is strong evidence that
institutional factors have a systematic and sizeable influence on reported happiness.
Other factor that has a high impact on satisfaction with life is health status. Analysis
of health status impact on happiness and other factors, which might influence happiness of
people, is provided in Vani K.Boraah study “What makes people happy? Evidence of
Ireland” (2004). Among these factors the health status is found to be the most important,
followed by, quality of area where people lived and age. Here is also stressed importance of
“social capital”(people around us) as determinant of happiness. As in all other similar studies
final conclusion is that more money not necessarily is more happiness.
Large emphasis in the field of Economics of Happiness has also been on implications
for public policies. Layard (2003) would propose based on his research, modify the taxation
policies, as well as labour legislation so as to provide less of a social gap and more secure
employment. Due to the fact that the current social trends overemphasize the importance of
money and rank, numerous socially unbeneficial activities take place, without leading to
more satisfaction with life of the performers of those activities. Those shifts in policies
should, Layard argues, be accompanied with major changes in the moral and values of the
global society, leading it to more cooperation and less selfish of a structure. Also, the role
models as broadcasted by television in particular are being regarded as a source of major
dissatisfaction with people themselves and others in the society.
Having seen the numerous researches done all over the world on Economics of
Happiness, we might turn to the area of this particular research – namely, what have been the
prior findings in Latvia, if any? And, indeed, there are almost none. The most comprehensive
paper also involving survey questions of overall happiness is the one by Gaugere and Austers
(2005) that involved conduction of 1104 personal interviews, thus resulting in a
representative survey of people in Latvia. The key findings on happiness were that socially
active people are happier, and that they have more trust in other people. There is also some
raw data on Latvia to be found in World Data Base of Happiness, yet it only exhibits the
levels of happiness, not in any way the possible determinants of it.
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Methodology
In order to see how good indicator of welfare GDP is in case of Latvia we, firstly, obtained
yearly GDP per capita values from Central Statistical Bureau of Latvia starting from year
1995 until 2006. GDP data for years up to 1995 is not reliable therefore is not included. Only
real GDP was used, recalculated in 2000 prices. Secondly, the data on how Latvians assess
their happiness was collected from international socio-economic surveys, namely, World
Value Survey, European Value Survey and Eurobarometer surveys. Since none of these
surveys is done on a yearly basis, data from all three sources will be compiled just to acquire
data for more years, thereby obtaining more accurate happiness development. Not all surveys
had identical response scales (they differed in number of response options and words used in
responses) for the happiness question. Accordingly, all answers were rescaled to a common 0
to 10 scale, that is, with 11 eleven possible answers. In this instance the well known linear
transformation was not used. Instead, we preferred method developed by World Database of
Happiness (2007), which is specifically designed to rescale happiness questions in order to
make them more comparable over years. Altogether, we obtained happiness data of the
following years: 1990, 1999, 2003, 2005, 2006 and 2007.
Furthermore, to see what might be other factors apart from GDP influencing the
satisfaction with life of Latvians we will use research agency’s SKDS survey on lifestyle and
values. In this survey 809 randomly chosen Latvians from all over Latvia are questioned. The
given survey is designed for a research, which aims to find long-term development strategy
for Latvia in social, economical and other aspects. Accordingly, there is greater emphasis on
people attitudes, future assessment (personal and national) and goals, values and long-term
life-style practices with respect to environment and monetary savings. More detailed sample
description is provided in the data description section. This survey provides us with the most
recent data of Latvian happiness assessment. Since the survey is conducted by a professional
research agency we believe that there are no biases or data distortions present that might
affect reliability and validity of the data collected.
Since in Latvia there have been almost no reports and surveys on our topic, we will
not be able to obtain reliable time series data to analyse the overall trends of factors
determining happiness. Hence, we will use simple cross sectional analysis.
In order to find out what are the factors determining happiness of people we will use
simple cross tabulation analysis accompanied with several ordered logit regression models. In
the beginning cross tabulation analysis and regressions with single independent variable will
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be used to provide insights of what factors might have influence on happiness, what are
factors’ separate effects on happiness and what is general happiness profile. Later on, by
developing joint ordered logistic models we will be able to estimate how the probability of
becoming happier changes if factor is changed taking in consideration other factors and, what
is more important, rank the relative importance of each factor. Additionally, in joint
regression we will compute marginal probabilities for each factor, which will show how the
probability of each dependent variable’s outcome (in our case these possible outcomes range
from being dissatisfied with life (1) to being satisfied with life (7)) changes in consequence of
factor value changed by one unit.
Results of the regression and separate variables will be assessed according to the
following four criteria.
 If β (coefficient on an independent variable) is positive, the variable is positively
related to happiness, otherwise negatively related.
 If β is not statistically significant in at least 95% confidence interval (accordingly p-
value <0.05), the respective variable doesn’t have significant impact on happiness, thus
it should be dropped. Conversely, if β is statistically significant, the variable has
significant impact on happiness relatively to the size of the coefficient. P-value 0.05 as
an assessment of significance is usually used for sample of sufficiently size thus in our
report as well. In some instances in order to able to analyse variables which do not have
very strong relationship with happiness p-values <0.10 might also be accepted, however,
we will deal with such variables cautiously.
Nevertheless, even more important criteria when assessing the magnitude of effect the
factor has will be the β itself (see the next criterion).
 Higher absolute value of the coefficient will be considered as indicator of higher
importance. To make the coefficients comparable over different variables we will use
full standardization of coefficients (dependent variable and all independent variables
standardized) and semi standardization (only independent variable standardized) with
more emphasis on semi standardized coefficients. The semi standardized outcomes will
be interpreted as follows – assume we have variable income with standard deviation
100.5 and semi standardized coefficient 0.02, then increase in income by one standard
deviation (by 100.5 LVL) would produce 0.02 increase in probability of ending up in
higher category of life satisfaction. Accordingly, increase of income by 1 LVL would
result in 0.02/100.5=0.0002 increase in probability of being more satisfied.
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 To measure the accuracy of the model and explanatory power of the chosen
regressors R-squared will be used.
Additionally we will use qualitative methods in our research, namely, expert interviews.
The purpose of the interviews was to explore other opinions and interpretations of our findings,
hear comments about public policies we are proposing and perhaps to find out what would be
experts’ suggestions for public policies based on our results. In our case such interviews are
even more valuable since our analysis include psychological and sociological factors which
might have different interpretations and should be analysed carefully. Accordingly interviews
were semi-structured (or open). As recording methods both audio recording (later transcribed)
and personal notes were used. In total 4 experts were interviewed from various fields of
specialization.

Variables
In our analysis it is the life satisfaction variable that will be used as estimator of one’s
happiness in regression model - as dependent variable (happiness variable) - complying with
the suggestion of Prof. B.S. Frey. We will use values attained from answers to statement
“Overall, I am satisfied with my life” with possible answers ranging from 1 (completely
disagree) to 7 (completely agree) rather than from question “Overall, how happy are you?”
(personal communication, March 14, 2008). Although people might find it rather difficult to
define happiness, they clearly and implicitly know when they are happy (satisfied with life)
or unhappy (dissatisfied with life), thus a question “how satisfied are you with your life?”
provides us with a very good happiness assessment. The independent variables and other ones
used in our analysis will be classified in five groups – personality variables, the most
emphasized group, variables based on personal questions concerning emotional states,
individual characteristics and values of the interviewee, socio-demographics variables,
economic variables, cultural/social variables and institutional variables.
The demographics variables’ section include such variables as age (exact number),
household_size (number of people in household), hhinc (household income per person),
hinc_sq (household income per person squared), spacepers (floor space per person), edu
(higher number denoting higher degree of education), nationality (here, 1 stands for Latvian,
2 for Russian, 3 for other nationality, meaning that decreasing the variable can be interpreted
as increasing one’s probability of being Latvian and probability of belonging to larger social
group with respect to nationality) . In addition, several dummy variables are formed based on
questions on education, marital status, occupation, living area, nationality and type of
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dwelling. The dummy variables are computed as follows. If a question has 5 possible
answers, then 5 binary variables are created, where the first variable is 1 if respondent choose
the first answer from 5 else 0, the second variable is 2 if respondent choose the second
answer otherwise 0, in the same manner the rest of 5 variables are created. Complete list of
binary variables is presented in Table 1, Appendix II (note, not all dummy variables are used
in analysis).
In other sections variables are numbers representing to what extent respondents
believe/agree to some particular opinions, agree to statements, and evaluate their personal
characteristics. The explanation of most important variables is provided in Table 2, Appendix
II.

Indices
There are many quite similar questions, which we will not examine separately, thus these
questions will be used to compile several indices, namely, political activeness index,
“passive” political activeness index, trust index (which additionally will be separated into
smaller personal trust and institutional trust indices), helpfulness index and creative activities
index.
The political activeness index is compiled from the following questions: “Did you
participate in the last parliamentary elections (7/10/2007)?” “Did you participate in the last
regional government elections (12/03/2005)?” “Did you participate in the recent referendum
(07/07/07)?” “Have you in the last two years participated in public protest activities
(demonstrations, processions etc.)?” “Have you in the last two years signed collective
(political) protest apart from referendum?” The index is sum of “yes” answers to the listed
questions, yielding a total number of political activities that the respondent has attended.
The “passive” political activeness index is average of following 8 questions: “How
often have you discussed politics with your 1) your family and relatives, 2) your friends, 3)
your colleagues, 4) your neighbours, 5) officials of local government; 6) teachers and
lecturers, 7) Non-governmental organisations, 8) in the Internet.” There were three possible
answers to the questions – “never” coded as 1, “occasionally” (as 2), “regularly” (3). All
questions were weighted equally in the index, accordingly providing us with assessment of
how often in general the given respondent discusses political events with somebody.
The trust index is constructed in a similar manner. It is composed from 8 questions:
“Evaluate, to what extent do you trust 1) your family and relatives, 2) your friends, 3) your
colleagues, 4) your neighbours, 5) school and educational system, 6) health-care system, 7)
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police and 8) court”, where possible answers were “do not trust at all” (coded as 1), “rather
do not trust” (2), “rather trust” (3) and “fully trust” (4). Hereby, all questions were weighted
equally as well. Moreover, to be able to precisely assess how trust to people around as well as
trust to institutions relates to happiness, separate indices are made. Clearly, the personal trust
index is an average of the answers the first four questions and the institutional trust index is
an average of the last four answers.
The helpfulness index is overall frequency of helpful activities performed (excluding
favours to relatives) by the respondent. Accordingly, the overall frequency is computed
based on how regularly respondents have talked over a personal problem with somebody,
helped with homework and/or gardening, helped when somebody has been physically
endangered, lent money, lent valuable utilitarian object (a car, a mower, a computer etc.),
looked after a baby, looked after some other minor (old man/woman, patient, invalid etc.),
helped to find a job. Respondents assessed the regularity of such deeds in four given
categories – “never” (coded as 1), “at least once” (2), “several times” (3), “often” (4).
Finally, the creative activities index similarly to the helpfulness index is simply a
measure of how frequently respondents performed 6 particular activities involving creative
approach. These activities are described in Table 3, Appendix II. The possible answers were
the same as in the case with helpfulness index. Accordingly, an average of is taken to
calculate the creative activities index.
In Table 4, Appendix II one can see what are the results of reliability and
compatibility of variables chosen to form indices. Only personal_trust index has lower
Cronbach’s Alpha than 0.7, the threshold of accepting the chosen variables to compute an
index. However, it is very close to 0.7 and since it is subindex of trust, it will be still used in
analysis.

Joint Regression Variables

In order to obtain a regression that would provide as reliable results as possible, it should
contain variables that explain the dependent variable to a large extent. Therefore, we are
using the findings of other studies – the variables that have proven to be influential
determinants of life satisfaction.
To start with, a set of variables derived from the study of Layard (2003) – where
findings of various authors have been aggregated, and also contributed to – are going to be
used. Those are: personality factors (being divorced, being married but separated, and being
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divorced, as well as inactivity of lifestyle), economic factors (being unemployed), and

cultural factors (trusting people around you).
The next set of variables has been derived from study of Frey and Stutzer (1999):
socio-demographic factors (education, and being a foreigner – in our case, being of different
nationality, as well as gender). The last variable derived from researches of Bruno S.Frey is
institutional factors (political activity), yet as it was pointed out by B.S.Frey during personal
communication (March 14, 2008), the factor should rather concern the rights of direct
democratic participation, not political involvement. Nonetheless, we are using the closest
alternative found in our data set.
The variable of being a student has also proven to be influential on life satisfaction in
the research by Haller and Hadler (2006). The income variable has also been found to be
significant determinant of happiness in many studies (see more aggregated information in
(Dolan et al., 2006)), and the same research has indications of different vocational factors,
one of which – being an entrepreneur – we also incorporate in our joint regression.
The factors indications of which we have not found in many studies, yet which turned
out to be influential in single factor regressions, are such personal factors as creativity, and
long-term thinking; and also a socio-demographic factor of space per person. The last
personality factor that was detected in another study, was working hard (BBC, 2006a).
The general principle of the choice of components for this joint regression was, first
of all, a logical model – as suggested by B.S. Frey during personal communication (March
14, 2008) – contrasted with a regression on all the factors available. There was also a
limitation of data availability (for instance, no information on health or religion), so the
optimal set of factors was compiled, selecting factors from the available information.

Data Description
Our data sample consists of 809 respondents. Males constitute 47% of all respondents,
accordingly 53% are females. Furthermore, 20.5% of people participating in the survey have
finished/unfinished primary or unfinished secondary education. 23% have secondary
education, but 31.1% have vocational educational. 8% have unfinished higher educational
and there are 141 respondents (17.3%) who have any kind of finished higher education.
About half of our sample are married or live together with a partner. What concerns
occupation of the respondents, a bit more than half of are employees, 12.5% are students who
either do not work at all or have temporary jobs, 17.8% are pensioners. If we take a look at
the income levels of the respondents, we see that approximately two thirds state that their
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personal income is less than 300 LVL, slightly more than one third of the survey participants
state that their income level is less than 150 LVL. Finally, 57.5% of our data sample are
Latvians, 37.7% are Russians. We move on to regional distribution of our sample, 32%
percent state that they live in Riga, 16.6% in area near Riga, 10.4% in Vidzeme, 13.2% in
Kurzeme, 12.4 % in Zemgale un finally the Latgalians constitute 15.4% of our data sample.
From living area perspective 32% of people questioned live in Riga, 39.2% in other city and
28.8% in rural area.
Given the sample description, we may assert that our data sample is good
representative of Latvia’s population in overall (see Table 5, Appendix II for comparison of
our sample and population of Latvia). There are only small deviations from whole population
in number of Russians and other nationalities (except Latvians). Thus our analysis and results
are generalasable.
In Table 6, Appendix II the distribution of answers to life satisfaction question is
provided. The most frequent answer was “5” with approximately 28% of all answers and the
next frequent answer is “4” with 22.71%, which indicates that people in Latvia are rather
satisfied with their lives. However, there is still a way to go in order to reach the full
satisfaction levels since "6" and "7" categories are represented only with 15.9% and 8.61% of
respondents, respectively. In total, 52.5% percent are above the satisfaction threshold
category “4” which stands for neither dissatisfied nor satisfied. On the other hand, there are
only 24.8% of those who have answered less than 4, meaning that they are dissatisfied with
their lives. The number of fully satisfied respondents (“7”) is higher than those who are fully
dissatisfied (“1”) by 42 people (5.18%). However, the share of people who are very
dissatisfied (categories “2” and “1”) which adds up to 7.78% is not negligible.
Regression Results
At first we will have a look at GDP and happiness trends. As we can observe in Graph 1
(Appendix I) our collected data support the statement already approved by Layard, that GDP
growth is very weakly if at all related to happiness (2001). In the last ten years Latvia has
faced staggering GDP growth resulting in more than twice-fold increase in GDP per capita.
In the graph in can be seen as increase from approximately 1500 LVL in 1995 to 3500 LVL
per head in the end of 2006. However, we cannot say the same about happiness. Although it
is clear that mean happiness has somewhat grown, it has had much slower rate than GDP. In
1990 mean of happiness was about 5.5, but now in 2007 it is just close to 6. Additionally,
there are some deviations (sudden increases with decrease afterwards) from the general trend
 13

of very slow happiness growth in 1996, 2003 and 2006, which, however, are not
accompanied with changes in GDP per capita.
Furthermore, some consistency check regressions have been run to see whether the
reported levels of life satisfaction can be trusted (see Table 7, Appendix II). Frequency of
different emotional states has been regressed on level of happiness to see if the positive ones
do correspond to higher levels of happiness. The results, only including the ones being at 5%
significance level, are as follows: being thrilled, inspired, and active are emotions that do
have positive relationship with the level of happiness, and being insecure, exhausted, and
saddened do have a negative relationship to it. The only outsider being ‘hostile’ as an
emotional state that has a positive relationship to levels of happiness (0.075), having p-value
of 5.9%, though.
Another reliability check tries to see whether the current reported level of life
satisfaction is consistent with the past (see Table 8, Appendix II). The results show that the
ones considering their life in time period from 2000 up till now as very bad, do have the
lowest current reported mean value of happiness (2.52), the highest mean value (5.86) being
with those considering their life in the previous year as very good.

Genes/Personality factors
Now, the impacts of respondents’ value system on their level of happiness shall be discussed
(see Table 9, Appendix II). The first variable to mention is importance of being creative
(imp_creative) – it is not only having the biggest impact on the happiness variable
(standardized coefficient of 0.281), but also being highly significant with p-value of 0.001.
Also, one’s perception that leisure is important (imp_leisure) has a fairly high impact on the
life satisfaction variable (coefficient of 0.084) and the relationship is close to 1% significance
level with p-value of 0.037. Three other factors that are worth mention are one’s perception
that adventure is important, environment preservation is important and behaving politely is
important, which are significant at 10%, with standardized coefficients being 0.148, -0.147,
0.151, respectively. One of the interesting results is the negative coefficient on one’s
perception of environment importance. The rest of the value system variables are
nevertheless highly insignificant with small coefficients, with perception that being wealthy
is important (imp_wealthy) among them. Importance of security (imp_security),
achievements (imp_achieve), family (imp_family) as well as being helpful to others
(imp_soccap) are all high above 10% significance level, thus not reliable determinants of
happiness level at all. One should probably note; however, that the coefficient on importance
 14

of security turned out to be negative (-0.009), being highly insignificant (p-value close to 1),
though.
The relationship between a person’s perception of his/her own creativity and his/her
reported level of happiness is demonstrated in Table 10 (Appendix II). The effect of a one
standard deviation (namely, 1.48 unit increase in creativity rating) increase in the creativity
rating is a 0.659 increase in the level of happiness, and very importantly, this coefficient is
one of the highest among all factors analyzed. Not only the results on self-reported creativity,
but also on factual creativity are available (see Table 11, Appendix II). Interestingly enough,
the acts of factual creativity have very low standardized coefficient, thus also the impact of
creativity on happiness level is miniscule (0.06).
One of the factors that demonstrate a robust trend concerning the relationship of its
value relative to the reported levels of happiness, is about one’s preference towards traveling
versus watching television (“Nowadays, it is not necessary to travel, because you can see
everything on TV”). The robustness is being observed (see Table 12, Appendix II) through
mean values of happiness for all groups of respondents following a trend, the respondents
fully agreeing to the statement being with the lowest mean level of life satisfaction (4.07),
and the ones fully disagreeing – with the highest (4.74); the groups in the middle also
showing higher mean value of happiness for the ones rather disagreeing (4.53) than the ones
rather agreeing.
Another interesting (yet, not very robust) trend can be witnessed with the answers to
the statement “I always think what my life in the future will be like and take appropriate
actions” (see Table 13, Appendix II), making the mean values of life satisfaction substantially
higher for those who think the statement completely or rather corresponds to them (4.49 and
4.75, respectively), than for those who suppose it completely or rather does not correspond to
them (4.39 and 4.33, respectively). Exactly the same relationship can be observed in case of
“I often do things, which will yield result only after many years” statement results (see Table
14, Appendix II), making those agreeing with the statement having in overall higher mean
levels of life satisfaction (4.88 and 4.46) than the ones disagreeing (4.47 and 3.91), especially
between the highest and the lowest category (with difference amounting to 0.97).
When it comes to results on “One will succeed if he/she will truly strive”(see Table
15, Appendix II), the trend exhibits positive correlation between mean happiness levels of
groups of respondents and the degree of agreement, making the respondents believing the
statement at all the happiest (mean life satisfaction value 4.63), and gradually ascending to
 15

the lowest value of 3.97 for the respondents rather not believing in the statement. The
category “do not believe at all”

Socio-demographic factors
Moving on to demographic factors - there is a quite robust trend concerning living
area, indicating that the more urban the area that the respondent inhabits, the higher is the
level of his/her life satisfaction – mean value of life satisfaction for people living in Riga
being 4.64; other city – 4.45, and rural area – 4.39 (see Table 16, Appendix II).
The results of the next regression where the relationship between life satisfaction
values and size of house/apartment is examined are presented in Table 17 (Appendix II).
Standardized coefficient is relatively high and positive indicating very significant impact on
life satisfaction.
A very significant (p-value close to 0) and consequently with very low standardized
coefficient (-0.525) demographic factor influencing one’s level of life satisfaction is age
(age). Meaning that becoming older by one year decreases one’s level of happiness by 0.03
(see Table 18, Appendix II).
Next, the impact of marital status on one’s level of life satisfaction (see Table 19,
Appendix II) – it turns out that the group of respondents having the lowest mean value of
happiness are those who are married but do not live together (3.71), followed by widowed
(3.88) and divorced (3.90) individuals. The top of the list in terms of mean level of life
satisfaction goes to those unmarried (4.95), followed by married or living-together couples
(4.52).
The results on education (see Table 20, Appendix II) suggest that the highest mean
value of life satisfaction (4.86) is with people having attained higher education (bachelor’s or
master’s degree), followed by 4.93 for those with unfinished higher education and 4.47 for
those with primary or unfinished primary/vocational/secondary education. The lowest mean
value (4.54) goes to finished/unfinished doctoral degree holders, exceeded by respondents
having finished vocational education (4.29) and secondary education (4.36).
We continue with exploring occupation’s impact on life satisfaction (Table 21,
Appendix II). The highest life satisfaction levels are demonstrated by students with mean of
5.26 who are followed with as matter of fact large gap by entrepreneurs/employers with mean
value 4.70. The groups on average having reported life satisfaction values higher than the
total average of life satisfaction values are housewives and self-employed people with
 16

corresponding means 4.65 and 4.66. The least satisfied groups prove to be unemployed and
pensioners – 3.48 and 3.87, respectively.
As the last socio-demographic factor we will examine household size. The results
demonstrate that household size is very important determinant of one’s life satisfaction with
p-value very close 0 and fairly high standardized coefficients. If one person would join a
household the happiness of previous inhabitants would increase by 0.309 (Table 22,
Appendix II).

Economic factors
In order to see how the amount of money (income) one has access to affects the level
of happiness, we calculated household income per person and household income per person
squared since we presumed that relationship might be quadratic. It turned out that income is
highly correlated with life satisfaction with high standardized coefficient (0.493 and p-value
close to 0) even without adding squared variable (Regression 1 in Table 23, Appendix II).
The results suggest that the relationship is positive. In the second regression we see that also
the squared income is significant at 10% level with negative coefficient implying that at some
point relationship changes - more income does not increase happiness any more, but on the
contrary decreases it. In addition, adding squared income did not contribute much in
explanatory power of regression as R squared increased only by 0.005.
As concerning the importance of employment stability, a quite robust trend can be
observed there as well (see Table 24, Appendix II). The replies to the question “Are you
afraid of losing job?” follow a steady relationship where people being most afraid to lose
their job exhibit the lowest mean level of life satisfaction (4.16), sharply increasing up to a
mean value of 4.74 for respondents who are rather not afraid to lose their job. The category
consisting of those who answered that their not at all afraid of losing their job deviates from
the trend with lower mean value of 4.56, nonetheless, still being substantially higher than for
those who answered that they are absolutely afraid and with the lowest representation of 74
people.

Cultural factors
When it comes to influence of trust on the level of happiness, it turns out that the quite
significant determinant of the life satisfaction value is the overall trust index (trust), i.e., the
extent to which the respondents trust other people and institutions altogether (see Table 25,
Appendix II). The standardized coefficient on the trust variable is also rather large (0.222),
indicating that a standardized deviation increase in the extent to which people have trust in
 17

others increases their level of life satisfaction quite substantially, namely, by 0.222. Yet,
when the trust variable is being split up in trust in people around (personal_trust) and trust in
institutions (inst_trust), we obtain p-values 0.024 and 0.682 for personal trust and
institutional trust, respectively, which demonstrates that personal_tust in fact incorporates
most of the joint trust index’s explanatory power on life satisfaction variable (Table 26,
Appendix II).
Proceeding further on to the regression results, we are going to highlight the factors
that have a big effect on the level of happiness and/or are significant determinants of it. To
start with, helpfulness (see Table 27, Appendix II) is a significant determinant of the level of
happiness - p-value of 0.009, thus being reliable at a 1% significance level, however, the
extent to which helpfulness influences life satisfaction is comparatively low – standardized
coefficient 0.166, which implies that every unity increase in the degree of helpfulness leads to
increase in the level of life satisfaction by 0.207.

Institutional factors
One of highly significant variables – p-value close to 0 - is one’s degree of political
satisfaction (polit_satisfaction), its impact on happiness level being 0.415 (see Table 28,
Appendix II). Results on political activity – both passive (passive_pol_activ) and active
(pol_activ) turn out to be highly insignificant, p-values being 0.709 and 0.512, respectively
(see Table 29 and Table 30, Appendix II). Yet, quite interestingly the coefficient on active
political activity is negative, though being insignificant.

Joint regression
The variables used in the joint regression are compiled from the ones proven to be influential
determinants of life satisfaction in other studies and the ones that were proven to be
significant in result analysis provided in previous sections. However, most of the indices will
be left out of the joint regression since only few number of respondents answered all of the
questions used in compilation of indices, which means that including such indices would
decrease the number of observations used in regression and consequently the reliability of
results acquired. This especially concerns trust index and its derivations (personal_trust,
inst_trust), which decrease number of observations to 250.
The results of joint regression are presented in three tables (Table 31, Table 32, Table
33, Appendix II) In Table 31 are results are designed as in previous regressions, that is, both
unstandardized and standardized coefficients are given as well as standard deviations of
independent variables. In Table 32 additionally to standardized coefficients (X standardized)
 18

marginal probabilities are calculated. Note that these probabilities are calculated based on
standardized variables, thereby the probabilities should also be interpreted as standardized.
Finally, in Table 33 cumulative probabilities of three categories are calculated, namely, in the
first category which we will denote as “dissatisfied” (with life) cumulative probability of
answers “1” and “2” to life satisfaction question, in the second category (“neither satisfied
nor dissatisfied” ) cumulative probability of answers “3”, “4” and “5” and the third category
(“satisfied”) as sum of the rest probabilities – answers “6”,”7”. In addition, marginal
probabilities are plotted on a graph (Graph 3, Appendix I)
In the personality factors section we can see that creativeness is the factor having the
highest impact on life satisfaction factor among all variables with standardized coefficient
0.507. Moreover, it is more than twice as high as it closest follower stud_bin with
standardized coefficient 0.219. Consequently, creative has the highest negative probability of
being dissatisfied (-0.0305) and the highest positive probability of being satisfied (0.0796). In
fact, it has highest absolute values of probabilities among all categories proving to be the
most important factor. Other personality variables have high importance as well –
hard_working with coefficient 0.208, long_term with 0.157, only having inactive lifestyle is
not of relatively high significance (p-value 0.097).
Proceeding further on to socio-demographic variables, we can, firstly, point out that
being widowed and divorced both would substantially reduce possibility of being satisfied by
0.0901 points and 0.086 points, respectively. The results also demonstrate that nationality
will have significant negative effect on satisfaction with life, which translates as 0.0104
probability of being dissatisfied if nationality variable is increase by standard deviation (see
Table 31, Appendix II for standard deviations). The largest coefficient among socio-
demographic factors is on stud_bin variable – 0.219. All other variables are not significant.
However, the insignificant variables correspond to theoretical directions (negative/positive)
of effects.
When it comes to economic factors, household income per person is the variable
having highest effect on life satisfaction with standardized coefficient 0.169, meaning that
one standard deviation increase in income would lead to 0.169 unit increase in life
satisfaction. Being entrepreneur influences life satisfaction positively as well, nonetheless,
the effect is very small and insignificant – being entrepreneur raises the probability of being
satisfied by 0.057 points (corresponds to increased likelihood of satisfaction by only 0.0092
points if standard deviation of business_bin increased by unit).
 19

In cultural factors section friends_trust has one of the largest impact among all factors
on one’s satisfaction of life – standardized coefficient of 0.171 and corresponding increase in
probability of high satisfaction 0.0264. Finally, we come to polit_act that also in
simultaneous effects model has negative effect on happiness, although highly insignificant.
Accordingly, being more politically active leads to decrease in likelihood of being satisfied
by -0.0055.
The first five most important determinants of life satisfaction are (in descending order
of importance) creative, stud_bin, hard_working, widow_bin and divorce_bin.
Interpretation of Results
Now, we shall seek to interpret the causal relationships revealed in the regression results, and
also try to give some possible explanations why those relationships take place.
The data clearly shows that increasing GDP not necessarily increases overall life
satisfaction. It is no doubt that increased GDP means in most of the cases increased income
and consequently increased welfare and better living standards. However, in our case more
income does not make one much happier. This might exist due to the fact that the wealthiest
part of the society benefit more than the poorest part in such way enlarging gap between the
upper class and lower class, which clearly results in dissatisfaction among those lagging
behind in terms of welfare.
To check the reliability of the reported happiness levels, we ran a regression checking
the impact of different emotional states the individual was asked to indicate frequencies of in
the past month. As can be seen in the results section, the relationships do indicate that the
reported levels are predictable – those people having had positive emotions during the
previous month (if we see happiness as a compilation of different positive emotions, then life
satisfaction would be impossible to have without having those separate positive feelings) do
turn out to be happier; and those having had negative feelings – with lower life satisfaction
levels, respectively.
Some path dependencies can be observed when regarding the results of happiness
levels, in particular, when observing the results on how people have evaluated their life in the
time period from 2000 up till now. One can see that the trend is absolutely clear – the better
one has evaluated his/her life in the recent past, the happier one (still) is now. One could
therefore probably argue that the feeling of happiness is a rather stable measure and is not
easily changeable over years.
 20

Now moving on to one’s value system, it can be observed that people who find being
creative, being adventurous, having leisure time and acting politely as important aspects of
their lives, are exhibiting significantly higher levels of happiness than those highlighting
other factors. It is the sense of accomplishment and simply time well spent that makes those
relationships viable (as also confirmed in an article of BBC, (2006a) upon a research
conducted in Sweden), thus making the people living up to those aspects of their value
system happier. The fifth important value was importance of environment preservation.
Hereby, the interesting finding is that the ones who agree that environment should be
preserved demonstrate lower life satisfaction rates. This might be present because in general
environment issues are neglected thus the ones who care about nature are dissatisfied with
current situation and with life in general.
In addition, results suggest that having more floor space in an apartment or private
house has a positive influence on one’s assessment of happiness. Clearly, having more floor
space and, thereby more convenient basic living conditions increases ones well being.
Moreover, it can be also attributed to findings of income and life satisfaction relationship,
that is, the ones with higher incomes (accordingly being very satisfied with life) can afford
more floor space.
Now, let us turn to the demographical factors, such as age. The effect is very straight-
forward, indicating that the older a person gets, the lower is his/her reported level of
happiness. This kind of relationship might take place because of some health issues (health
suggested as a very important determinant in Boraah 2004)) or in case of Latvia because of
pensioners being on of the poorest social groups.
There are also quite explicit trends when it comes to living area – the more rural the
area the respondent inhabits; the lower is his/her reported level of happiness. This might be
due to the array of opportunities that one has once one lives in more urban area, and less so
the more rural the area gets.
And the factor that has a significant positive influence one one’s happiness rating is
the number of people in a household, making households with more people in it more happy.
This is also a quite counter-intuitive finding, probably to be explained by the fact that humans
are still social beings, or the fact that there are more people in the household while there are
still children living with their parents, and the younger the respondents, as we have already
learnt, the higher the degree of happiness.
Continuing with social capital issues, it is also the case that people who have more
trust in others both personally and institutionally, exhibit higher levels of happiness. Having
 21

more trust for others might simply mean that the person has less daily stress to cope with,
thus the degree of happiness is higher. The same applies to people who are more helpful –
their levels of happiness are also higher, probably due to the satisfaction one gets from
helping others, or also because of knowing that some help can be received in return if needed.
Trust and helpfulness being a positive factor for happiness is also pointed out by Layard
(2003).
A very important finding concerns possibility of unemployment – the respondents
having indicated that they are afraid to lose their job exhibit substantially lower levels of
happiness than those who are less afraid to. Hence, employment stability is an influential
determinant of peoples’ happiness, as is also suggested by Di Tella, and MacCulloch (2007).
What concerns political issues, it turns out that one’s happiness level is being
increased by political satisfaction, but not with passive or active political participation. While
the former one is rather intuitive (quite similar to the trust argument), the latter ones are
somewhat bizarre. Yet, in the current political situation it is probably due to the fact that
political participation might not yield very visible results, thus being somewhat of a
disappointing experience. Prof. B.S. would also indicate that rights for political involvement
are what matters, not the political satisfaction (personal communication, March 14, 2008).

Joint regression
Here we will continue specifically with interpretations of joint regression results.
One of the most statistically significant relationships revealed – the impact of
considering oneself being creative on reported levels of happiness. As the results suggest, the
relationship is extremely significant and has a fairly high coefficient (0.507), thus implying
that the more creative person one considers him/herself, the happier one is. The interesting
point; nevertheless, is the very large difference that is observed among the results for self-
reported level of creativity and the factual acts of creativity – the acts of creativity being
insignificant determinant of happiness and having a small coefficient. The key point here is
that it does not really matter how creative one is in reality; what matters is how one perceives
him-/herself.
Other factor having particularly high effect on life satisfaction is being a student.
Additionally, students were the happiest group among all occupation groups. Meaning that if
one is a student he/she have higher probability of being satisfied. This should not be
surprising. Students in most of the cases have less responsibilities, they parents provided
them with necessary financial means, thus they have less worries than other social groups.
 22

Consequently, students can devote more time to different activities they like which most
probably will be left aside when becoming older.
As it was shown in the regression being more hard-working person surely increases
likelihood of being satisfied with life. The finding implying that hard working people is very
important positive influencer of life satisfaction initially might sound surprising as hard
working is usually associated with cumbersome and exhausting activities. However, as it has
been also demonstrated in other studies that it is common hard working having positive effect
on happiness and such link is present because working hard to achieve a goal or simply being
more active is very fulfilling and rewarding (BBC, 2006a).
Being divorced and widowed both lead to a somewhat similar change of life
satisfaction, probably because both those conditions imply losing one’s long-term partner.
But the interesting part is that the people who have not yet lost their long-term partner
forever, namely, the ones who are not divorced but live separated in regression demonstrate
not significant negative effect on life satisfaction, however, they were the least satisfied
(mean happiness value 3.71). This might be explained by the fact that they are not any longer
in their previous long-term relationship, yet, at the same time, they are not quite free to start a
new one, since the previous one has not been destroyed completely. But the overall findings
of widowed, separated and divorced people being less happy are perfectly in line with the
findings of Layard (2003).
Now, continuing with income effects - if GDP and happiness trends implied that
money has no positive influence on how happy one feels, then results on household income
per person relationship with life satisfaction suggest quite the opposite. Nevertheless, as it
was concluded in GDP case the gap between different social groups matters. Increased
income, in fact, can increase happiness, since one with more income can now easily satisfy
his/her basic needs. Results of the second regression from results presented in economic
factors’ section (Table 23, Appendix II) indicate that the positive trend stops at some point
and thereafter becomes negative, meaning that after some income level more money leads to
unhappiness. However, the income level where the positive effect is reversed is very high
thus also taking in consideration that we have almost no observations at that level no
conclusions will be derived based on this finding (see Graph 2, Appendix I for better
illustration).
Very interesting finding is that nationality has negative coefficient of high
significance, which might be interpreted as Latvians having the highest possibility of being
satisfied, Russians having lower possibility and other nationalities the lowest possibility. As
 23

proposed by B.S. Frey and Stutzer other nationalities apart from the one mostly represented
in a country similarly to foreigners have less direct democratic rights and hence lower levels
of reported satisfaction with life (1999). In context of Latvia it might be also explained by
lack of social integration.
One of the most distinct relationship is between long term thinking and life
satisfaction – people who do plan their future, and work for it in advance exhibit higher levels
of life satisfaction. This seems quite reasonable, since people who do plan their future in
advance have probably done so up till now as well, so where they are now is what they have
been striving for. Also, it probably adds to feeling safe if one knows what the future might
bring and gets ready for it. The other causality is also rather intuitive because if one believes
in his/her own potencies, not on destiny, this person also probably does more effort and
achieves more than those passively relying on something else.
Another results described in the joint regression results analysis concerns the impact
of passive (watching television) and active (going traveling) lifestyle on one’s level of
happiness. The results clearly indicate that preferring active and/or adventurous activities
over passive ones lead to a substantial increase in one’s level of happiness. Possible
explanation for this kind of causal relationship might be omission of routine, as well as
simply feeling better and fitter because of physically more active lifestyle.
The regression also approved well know finding (Layard, 2003) that trust has highly
positive impact on happiness levels. In our case, specifically trust in friends increase
probability of being satisfied.
Continuing with unemployment, which as shows the joint regression leaves a quite
significant negative effect on one’s assessment of life satisfaction. Unemployment indeed
decreases life satisfaction. This effect is usually explained by unemployed having an unstable
financial position and corresponding decrease of living standards (Layard, 2003).
The regressions results also suggest that being a male leads to fairly substantial
decrease in life satisfaction. There are several factors that explain such relationship – females
have greater emotional amplitude and are more eager to express extreme emotions which
results in deviation of female answers (comparatively to male answers) either to much higher
life satisfaction assessment or to much lower life satisfaction assessment, in addition males
suffer more from being unemployed, partially employed and living alone (Dolan et al., 2006).
Other variables are insignificant, nevertheless, all of them with on exception exhibit
the direction of impact on life satisfaction in accordance with theoretical findings, namely,
floor space, and education and being entrepreneur has positive correlation with life
 24

satisfaction. The exception we are referring to is political activeness, which demonstrates

unexpected negative relationship, the most insignificant though.
Discussion and Implications
After the main determinants of life satisfaction have been identified, we will try to show what
are the possible directions for public policy implications if it is the happiness of the people
that the government is going after. Also, we will discuss the issue of applicability of the
findings of Economics of Happiness in general for public policies.
As can be seen from the results of data analysis, there is a wide array of factors
influencing one’s subjective life satisfaction. The set of factors exhibiting the largest effect on
life satisfaction (highest standardized coefficients) are personality factors, thus making a
hard-working and self-reportedly creative person significantly happier than the others.
Unfortunately, this does not help much in terms of shaping public polices, as changing one’s
personality is beyond the reach of any public intervention (‘brainwashing’ or hypnotic
interactions are not exactly the activities we would be proposing in this paper). This might
indicate that one’s life satisfaction to a certain extent still depends on one’s personal traits
and attitudes. On the other hand, one can see that it is by far not only dependent on
personality factors, so the case is not hopeless. The only factor that could be affected by
public policies, at least to some extent, is the activity of lifestyle – the precedent of United
Kingdom, where parents of obese children are notified and warned in an official letter
(Parents of Fat Children to Be Given a Warning, 2007), could be one of possible alternatives.
The outcome, as well as ethics of such an intervention is nonetheless under question.
On the other extreme, the group of factors having the smallest effect is institutional
factors. Moreover, the impact of increased political activity turns out to be negative, thereby
making any propositions for implications illogical (activities that would aim at making people
less politically active, a proposition that would contradict any principles of democracy) and
hardly possible.
Another group of factors that would be hard to influence by public policies are
cultural factors. The extent to which a person trusts people around him/her does have an
effect on one’s satisfaction with life, yet the possible ways of how to reach higher levels of
trust in the society are by themselves a matter of serious discussion.
Moving on to socio-demographic factors, we can see quite the same picture – most of
the factors in this group are inherent (gender, nationality) or simply a matter of fact
(widowed, being a pupil/student). Yet two of the factors, namely, level of education and
 25

space per person, could be considered. Concerning education, it is either expanding the
availability of education (more people attaining higher degrees), or rising the quality of the
education, because it is not clear from the results, whether it is the attainment of a degree, or
acquiring more knowledge that makes people happier. For instance, if it is the knowledge that
matters, then improving the quality of e.g., a Bachelor of Science degree, one could attain the
extent of satisfaction equivalent to that of someone with a Master’s degree. The space per
person, on the other hand, would indicate that the government might support creation of new
places of residence, may it be a municipality-built apartment block, or a private initiative.
Finally, the group of economic factors is going to be discussed. The only negative
factor in this group, which is in addition also quite influential, is unemployment effect. The
suggestions in terms of public policies can be various – larger unemployment benefits, more
stable employment regulations, as well as involving employment by the government in case
of high unemployment rates (unemployment issues with respect to public policies have been
discussed very thoroughly in Di Tella and MacCulloch (2007)). In short, any policy reform
that brings a decrease in unemployment will also result in rise of people’s life satisfaction.
Nevertheless, the most influential factor is evidently income per person, yet it can
hardly be influenced directly. One possible way of increasing personal income was suggested
by Prof. B.S. Frey (personal communication, March 14, 2008), namely, that establishment of
more business schools could lead to more people becoming managers or even CEOs, thereby
gaining the high levels of income sought for. This could probably be induced towards
establishment of any educational institution that focuses on high value-added industries, e.g.,
IT, hi-tech, pharmacy etc.
Another interesting issue can be raised when discussing the income effects – the
impact of higher income is substantial and significant on people’s life satisfaction, yet when
GDP and life satisfaction are being related, no link can be found whatsoever, as the results of
this paper also suggest. This could be the case to some extent because of social inequality
taking place (Layard, 2003), as; first of all, the wealth is not distributed evenly across people
(very large proportion of wealth is possessed by a very small proportion of the population),
making GDP overly dependent on inadequately small range of people. Secondly, as it was
noted previously, the positive effect of income seizes to exist after a certain threshold of
income attained, thus it can be argued that the range of wealthy people being over-
represented in GDP do not exhibit higher levels of life satisfaction. If the income was, in
contrast, distributed more evenly, the positive income effect would be relevant for a larger
range of people, plus the negative effects of poverty would be avoided. Therefore, one of the
 26

most daring implications of Economics of Happiness implies redistribution of wealth

(Layard, 2003).
The last factor analyzed was entrepreneurship, and it exhibits positive effect on life
satisfaction. The implication here would be rather straight-forward – nascent entrepreneurs
should be supported. Moreover, when regarding the mean income distribution on different
vocational groups (see Table 34, Appendix II), the income difference between entrepreneurs
and other vocational groups is tremendous, indicating that entrepreneurship is a very
powerful factor through which the positive effect of higher income can be achieved. On the
other hand, even holding income constant (as it is in the joint regression), being an
entrepreneur in itself has a positive influence, thereby through promotion of entrepreneurial
activity and encouraging more people to establish their own companies, their life satisfaction
would increase not only on account of higher income. Being an entrepreneur also makes one
more satisfied with life, and entrepreneurial activity is indeed an area that can be shaped and
supported using direct public intervention.

Principle Discussion
Yet before we proceed to an example of how one of the above-mentioned implications could
be applied in practice, a more general discussion should be elaborated. Namely, if findings
from Economics of Happiness should be incorporated in public policies at all? And can one
be sure that the policies introduced would bring the expected result – has anyone done it
already in the first place? First of all, let us discuss the ‘should or should not’ issue. There are
many (mostly old-school) economists that are very skeptical towards Economics of
Happiness. The reliability of the results is being challenged, the outcomes of possible policy
implications are doubted, and the need for increased life satisfaction of the people is being
challenged (all the criticism is very well demonstrated in Duncan (2005)).
Nevertheless, the research interest in Economics of Happiness has been surged lately,
and there are consistent evidence indicating that the measures of life satisfaction can be
trusted – results of different researches are not only consistent with the findings on the theory
of psychology but also tend to hold within different time periods, across different countries
and even different measures of well-being (findings of various studies and authors, see
Powdthavee, 2007). Besides, people have always been striving for happiness, very
demonstrative examples of that could be moral philosophy of Jeremy Bentham (1789) – that
the purpose of politics should be bringing the greatest happiness to greatest number of people
- and the American Declaration of Independence that stated “certain inalienable Rights, that
 27

among these are Life, Liberty and the Pursuit of Happiness” (The American Declaration of
Independence, 1776, as cited in White, 2007). In addition, psychologists have started urging
for measures of subjective well-being to form the basis of public policies and the political
assessment of a nation’s success (Diener, 2000). In terms of more people-oriented urges one
can mention a recent survey by Easton (2006) discovering that 81% of the people in the UK
agreed that the primary objective of the government should be the creation of happiness not
wealth. All this leads us to a conclusion that Economics of Happiness should be attempted to
incorporate in public policies.
Now, let us turn to the issue of practical applications. The idea of happiness-
influenced policies is not that revolutionary after all, especially nowadays. The first and
pioneering example of happiness-led public policies comes from Bhutan back in 1972
(Revkin, 2005). The results of this governing were not devastating, in fact, some positive
changes occurred – even though the household incomes in Bhutan still remain among the
world's lowest, life expectancy during the period from 1984 to 1998 increased by 19 years,
jumping to 66 years (Revkin, 2005). Yet it is one of the most dramatic examples. One of
more contemporary examples could be statements of David Cameron, HM Leader of the
Opposition, who put happiness on the political agenda by claiming that “It’s time we
admitted that there’s more to life than money, and it’s time we focused not just on GDP, but
on GWB – general well-being" (BBC, 2006). And, according to Elliott (2007), several other
policy makers in the United Kingdom are considering incorporating subjective well-being
implications in the policies. For instance: the health department is working on
recommendations to primary care trusts on promoting well-being, the transport and culture
ministries also expressed interest in measuring how their policies influenced people’s
happiness. At the same time, the Department of Trade and Industry has already launched a
two-year research project into “Mental Capital and Well-being”, which, “aims to produce a
challenging and long-term vision that maximises mental capital in the UK in the 21st century
for the benefit of both individuals and society” (Elliott, 2007). In short, the findings on
subjective well-being have been and are currently being employed in shaping public policies.

Example of Practical Implications

To make all the issues discussed above somewhat more tangible, we are hereby giving an
example of very practical implication for public policies. This is done to prove that the
findings of Economics of Happiness can indeed be implemented in real life by very
traditional means. The factor we have chosen for this example is entrepreneurship, more
 28

specifically; one of the actions that the government of Latvia could take in order to raise the
number of newly established companies.
Let us first analyze the existing situation in Latvia. According to a Global
Entrepreneurship Monitor survey (Bosma et al., 2007), the overall entrepreneurial activity in
Latvia is 7.7%, i.e., 7.7% out of 18-64 years old population is involved in entrepreneurship.
This number is miniscule when compared to that of Finland (14%) or Iceland (19.8%). Yet
the most worrying number is that of nascent entrepreneurial activity – only 2.2%, which is
the primary concern of this paper, since becoming an entrepreneur is what should be
promoted, not as much supporting the existing companies. Moreover, as it is suggested by
Kent (1990), based on extensive research, “although only a relatively small number of people
become entrepreneurs, there is a significantly larger number of creative change makers that
the nation needs”, showing that there might be many more individuals capable of becoming
entrepreneurs in every country and society, including Latvia. Next, we should clarify what
are the existing actions undertaken by the major government run institution – the Latvian
Innovation and Development Agency (LIAA), and there are indeed several very extensive
programs financed by the European Structural Fund and the State of Latvia intended to
support entrepreneurs (LIAA, 2008). Nevertheless, once explored more carefully, it turns out
that all the programs undertaken from 2004 to 2006 were dedicated solely to support existing
companies, and no funding would be going to those willing to start a business (LIAA, 2008).
The most notable activity aimed at potential entrepreneurs is Venture Cup business idea
competition, organized in cooperation with Riga municipality (Ideju kauss, 2008), yet it is
only a very limited number of applicants that receive financial aid. It is only this year, in
2008, that a program is to be launched aimed at motivating yet to-be entrepreneurs (V.
Brakovska, personal communication, March 25, 2008); however, some more support, and
financial aid in particular, might be needed.
This is exactly what our proposal on public policy implications is going to focus on,
based on interviews with entrepreneurship support experts (we are well aware that
entrepreneurship support activities are also an area of extensive research; nevertheless, since
it is not the main focus this paper, we base our recommendations on expertise of people who
have been working with those activities professionally, thus providing reliable information).
The idea of pre-seed financing was first suggested by project manager of Knowledge and
Innovations Systems Department at LIAA, Ms A. Griņeviča (personal communication,
March 25, 2008), explaining that there are many people with potentially profitable business
ideas, who are having financial difficulties at the pre-startup phase. It is because of those
 29

minor financial difficulties that many business ideas are never implemented. Both experts
noted (V.Brakovska, A. Griņeviča, personal communication, March 25, 2008) that the pre-
seed financing program should also be integrated within a complete entrepreneurial support
program, where further stages after the completion of the pre-seed investment would be
considered and accompanied with appropriate guidance and support, so that the business idea
would not stop at this early stage. Moreover, practice of many countries has proved pre-seed
financing programs to be effective in terms of increasing nascent entrepreneurial activity –
Austrian Program of Innovative Actions (Agneter, 2007) being one of the examples – in a
period of only 2 years 28 business plans were elaborated, and 10 new companies were
already established. It was also concluded in the study of European Commission’s
Directorate General for Enterprise and Industry (European Commission, 2007) that
facilitating availability of pre-seed and seed finance would enable more business ideas to be
carried out.
In short, both the experts and international practice are suggesting pre-seed financing
to be made available, therefore the final implication for public policies of this practical
implication example proposes:
1) Providing more support to yet-to-be entrepreneurs, and encouraging new
companies to be founded, instead of mainly focusing on support of
existing companies;
2) Allocating substantial finding and support to pre-seed financing programs,
integrated within a complete system of entrepreneurship support activities,
as one of the possible ways of how to achieve this goal.
Conclusions
As it was noted in the Introduction, the purpose of this paper is dual. First, thorough analysis
of life satisfaction data has been performed, determining the relevance of life satisfaction to
GDP, as well as identifying the most influential factors affecting the level of life satisfaction.
Secondly, the issue of implications for public policies has been explored, demonstrating that
integration of findings of Economics of Happiness within tangible actions is an increasingly
accepted practice, especially in the case of UK. Also, a set of possible public policy
implications for Latvia have been brought forward, including an example of a very practical
plan of action to implement one of the implications proposed – just to demonstrate that it can
indeed be done. But first things first.
 30

GDP and life satisfaction. As expected, the relationship between GDP and life
satisfaction values over time does not hold. It means that GDP measures are indeed hopeless
measures of well-being, and if that should be the focus of Governmental actions, as
psychologists and the majority of the people would probably agree to (as in the case of 81%
of UK population), then creation of an alternative indicator might have to be considered. One
of the reasons for such a paradox – as most studies clearly indicate that another purely
financial factor, namely, personal income, does have a substantial and positive effect on life
satisfaction values – could be the social inequality. Not only the devastating effects of
poorness are not being reflecting in GDP, but also the fact that the richest individuals do not
become any happier. Once social inequality were eliminated or decreased, GDP might still
have a chance.
Factors that make Latvians happy. It turns out that the factors having most weight
concern one’s personality. It is one’s self-esteem (how creative one thinks one is), persistence
(being a hard-working person), and also long-term thinking that contribute very positively to
one’s satisfaction with life. Also, preference for active lifestyle instead of watching television
makes you a happier person. Cultural factors, such as trust in people around you, also affect
one’s life satisfaction – being a more trusting person, or having the environment where the
society is more trustworthy in general makes for a more satisfied perception of life. Political
activity, an institutional factor in contrast turns out to be a very minor, and also not very
reliable factor determining life satisfaction – probably because rights for political
participation, and not political activity in itself are what matters. There is also a wide range of
socio-demographic factors that have an effect on one’s life satisfaction, the most negative of
which quite reasonably being the situation of being widowed, and divorced. Being married,
yet living separately also has a negative influence but it is not that drastic. Two other sources
of negative effect are being a non-Latvian (of Russian or other nationality), and quite
interestingly – being a male. In the first of the cases it might be the lack of direct democratic
rights that create this effect, and in the latter case – the fact that males tend to suffer more
from unemployment and living alone than women, which would result in lower life
satisfaction, holding everything else constant. Among positive factors, there is education (the
more education one has, the happier person one becomes), and being a pupil/student (pupils
and students exhibit higher levels of life satisfaction, ceteris paribus). And finally, larger
living space per person also makes one a happier person. The last group of factors left is
economic factors, and the relationships revealed are rather intuitive – unemployment has a
devastating effect on the person subjected to it, whereas higher personal income, quite the
 31

opposite. Being a businessman also increases one’s life satisfaction, even if the substantial
effects of income are accounted for, so there is more to it than just earning more money.
Implications for public policies. As demonstrated in the Discussion part, there are
good reasons for well-being to be accounted for in governmental actions, as people have
always been striving for happiness. Moreover, it is not only academics and psychologists who
are considering the life satisfaction issues nowadays – it is increasingly starting to be taken
into account when shaping very practical political issues, the UK being in the lead so far.
Therefore, one could argue in favor of a more serious attitude towards all the findings that
well-being studies are providing. The changes do not need to be dramatic, one might just
consider happiness outcomes along with economic and political outcomes whenever a policy
reform is being considered so as not to introduce public intervention that among other
(possibly, positive) things brings misery to the people concerned.
And in terms of public policy implications that should make the people in Latvia
happier, there are several possible direction proposed. For instance, education might be made
more available, or the level of its quality could be increased. Alternatively, state support for
establishment of new housing (e.g., municipal apartment blocks or private initiative) could be
introduced. Another direction concerns policy towards unemployment – it has been proved
that any activities reducing the number of people being unemployed affects the level of life
satisfaction positively. Yet another possibility is support for those industries and/or
educational institutions that focus on knowledge or technology-intensive areas, which would
result in higher personal income levels. And finally, the public implications can also concern
establishment of nascent entrepreneurship – the state could be allocating more resources to
support particularly yet-to-be entrepreneurs (through, e.g., pre-seed funding activities, as the
developed practical example suggests).
To sum up, there are indeed good reasons why the findings of life satisfaction studies could
become a part of public policy shaping process, and as has been demonstrated, the
implications based on those findings are not limited to a particular area, but cover almost
every aspect of people’s lives. It is at least awareness of the factors that improve or vice
versa, lower people’s well-being that should be present when forming any public policy.
Limitations and Further Research
No scientific research is perfect, and the current paper is no exception. We shall try to
highlight the major areas of limitations, and also point out the possible directions of further
research that might shed light on the issues that are at the present moment still ambiguous.
 32

One of the most obvious limitations of this paper is the fact that the data only covers
one particular point of time. Analysis of longitudinal data, or even better – panel data – would
certainly help explaining various factors more precisely. In fact, as Frey and Stutzer point out
(2003), panel data – data gathered by questioning the same individuals over time - is
increasingly being used in researches on subjective well-being. Nevertheless, at the present
moment no panel data concerning people’s life satisfaction in Latvia exists, so it is clearly a
direction for further research in the future.
Another common limitation of any research on reported life satisfaction is the issue of
reversed causality – it is extremely hard, if possible at all, to determine what is the direction
of causality of the identified factors. For instance, it cannot be determined whether unhappy
people watch more television because they are unhappy, or if watching too much television is
what is making them unhappy (Frey, 2008). One way of solving this problem would be yet
again using longitudinal panel data, so as to identify deviations in either of variables as soon
as they emerge, thereby seeing which one appears first. Nevertheless, even if the causality
goes both ways (one watches more television because one is unhappy, and watching more
television makes one unhappier), it can still be argued that one can become happier by
reducing time spent watching television and substituting it with some other activities, thereby
breaking the ‘vicious circle’.
Furthermore, genetic predispositions can also bias the data obtained on life
satisfaction – for instance, if the respondent has low self-esteem or neuroticism (Powdthavee,
2007). The main problem with this bias is that the various latent psychological differences are
very hard to observe, thus creating an omitted variable bias.
Nevertheless, one should also note that despite all the limitations mentioned above;
findings of numerous studies on life satisfaction are not only consistent with the findings on
the theory of psychology (e.g., life satisfaction being ‘U-shaped’ in age) but also tend to hold
within different time periods, across different countries and even different measures of well-
being (findings of various studies and authors, see Powdthavee, 2007). This fact indicates that
life satisfaction research, though still having very much space for improvement, is
nevertheless providing consistent and valuable results.
And, finally, very practical directions for further research stem out of the findings of
this paper. Firstly, the indications of life satisfaction for people of Latvian nationality being
significantly higher than those of people of Russian or other nationality. The factors
determining this gap and making Latvians happier than Russians or people of other
nationality would be a very interesting, though challenging, research topic. And secondly, the
 33

most influencing factor identified in this paper – the self-perceived level of creativity – might
also require some further research, namely, to find ways of making people perceive
themselves as more creative. One option, as also supported by experts on innovation (V.
Brakovska, personal communication, March 25, 2008) and creative industries (Prof. R. Ķīlis,
personal communication, March 14, 2008), would be designing of more creativity-oriented
educational system, starting from primary and secondary schools. The challenge hereby
would be to find out the most efficient ways of cultivating creativity.
 34

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 38

Appendix I
GDP per capita Happiness
4000 10

Mean of value of happiness assessments

3500

8
GDP per capita, LVL 2000 prices

3000
7

2500
6

2000 5

4
1500

3
1000
2

500
1

0 0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Graph 1. GDP per capita, LVL at prices of year 2000 depicted against Mean value of
happiness assessments.
Self-created graph from the data found in the World Value Survey, European Value Survey and
Eurobarometer surveys.

Household income per person relationship with life satisfaction

5.5
5
Life Satisfaction
4.5 4
3.5

0 5 10 15
Income levels

Fitted values Life Satisfaction

Graph 2. Household income per person relationship with life satisfaction plotted.
Self-created graph from the data obtained from SKDS’s survey.
 39

Plotted marginal probabilities of factors influencing life satisfaction

00
06
0.
00
04
0.

hard_working
long_term
inactive_life
creative
00
02

edu
0.

spacepers
nationality
divorce_bin
Marginal Probability

marrsep_bin
00

1 2 3 4 5 6 7 widow_bin
00
0.

stud_bin
male
business_bin
unemply_bin
0

hhinc
20
.0

friends_trust
-0

polit_activ
0
40
.0
-0
0
60
.0
-0
0
80
.0
-0

Life Satisfaction

Graph 3. Plotted marginal probabilities of factors influencing life satisfaction..

Self-created graph from the data obtained from SKDS’s survey. Not all variables are clearly
observable in the graph since some of the factors overlap with each other.
 40

Appendix II
Variable Description
Education  
unfinished primary, primary, unfinished
unprim_bin vocational or secondary education
voc_bin vocational education
sec_bin secondary education
untert_bin unfinished higher education
higher education (bachelor or master
tert_bin degree)
doc_bin finished/unfinished doctor’s degree
Living area  
riga_bin Riga
city_bin Other city
rural_bin Rural area
Marita status  
marr_bin Married or lives together with a partner
unmarr_bin Unmarried
marrsep_bin Married, but do not live together
divorce_bin Divorced
widow_bin Widowed
Type of
Dweilling  
no_heating_bin house without heat insulation
heating_bin house with hear insulation
multistorey_bin multi-storey apartment building
rowhouse_bin family house lined in a row
ecohouse_bin ecohouse
Occupation  
emply_bin hired worker
selfemploy_bin self-employed
business_bin employer, entrepreneur
unemply_bin unemployed
student_bin student (not working full time job)
house_bin housewife
pens_bin pensioner
scien_bin scientis, engineer
Nationality  
lv_bin Lavian
russ_bin Russian
other_bin Other nationality
Table 1. List of dummy variables created from demographic data.
Self created table. Not all dummy variables used in analysis.

Description of most important personality variables

Question Range
hard_working One will suceed if he/she will truly strive. 1-5
I often do things which will yield result only
long_term after many years. 1-4
Nowadays, it is not neccessary to travel,
inactive_life because you can see everything on TV. 1-4
In your opinon, how creative (original,
creative talanted) your are in comparison with most 1-7
 41

of the people?
Evaluate to what extent you think and feel
simlarly  
Wealth, a lot of money and expensive things
imp_wealthy are important 1-5
Success and recognition by people around
imp_achieve is important 1-5
It is important to have good time, indulge
imp_leisure yourself. 1-5
imp_adventure Adventures, risk, exciting life are important. 1-5
imp_creative It is important to be creative, to innovate. 1-5
It is important to preserve nature and take
imp_environ care of environemt 1-5
It is important to help people around you,
imp_soccap take care of their well being. 1-5
It is important to in accordance with family
imp_family and religous traditions 1-5
It is important to be polite, not to do
something that might be considered to be
imp_polite wrong by others 1-5
It is important to be secure, avoid possible
imp_security threats 1-5
Table 2. Description of variables.
Self created table. The highest number in the range stands for the highest possible level of
agreement/belief, accordingly the lowest number for the lowest possible level.

Description
creativeact1 Instead of buying gift in a shop, I have made it my self.
Whilst reading a story to children, I have altered events in
creativeact2 stroy/changed the ending.
creativeact3 I have solved technical problem without help of specialist.
I have redesigned, upgraded piece of clothing according to my
creativeact4 viewpoint.
I have made a game more interesting by changing the rules of
creativeact5 it.
I have made a piece of clothing in accordance with my own
creativeact6 sketches.
Table 3. Description of variables used to compute creative_act index.
Self created table.

Reliability analysis of indices

Cronbach's
Index Alpha
politi_activ 0.711
pasive_polit_activ 0.707
trust 0.795
personal_trust 0.684
inst_trust 0.826
helpfulness 0.810
creative_act 0.726
Table 4. Reliability analysis of indices.
Self created table using the results of index compatibility analysis. Cronbach’s Alpha higher
than 0.7 is considered to show acceptable extent of reliability and compatibility of variables
used to compile index.
 42

Sample Population
Data set Latvia
Males 0.470 0.461
Females 0.530 0.539
15 - 24 0.198 0.199
25 - 34 0.178 0.177
35 - 44 0.177 0.177
45 - 54 0.180 0.179
55 - 74 0.267 0.268
Latvians 0.575 0.590
Russians 0.377 0.283
Others 0.048 0.127
Riga 0.320 0.317
Near
Riga 0.166 0.164
Vidzeme 0.104 0.105
Kurzeme 0.132 0.134
Zemgale 0.124 0.125
Latgale 0.154 0.155
Riga 0.320 0.317
Other
city 0.392 0.371
Rural
area 0.288 0.312
Table 5. Comparison between sample and population.
Self created table. Comparison of demographic descriptive between the data set used in
analysis and whole population, namely, Latvia.

Frequencies of life satisfaction.

Frequency Percent Cumulative Percent

1 28 3.43 100.00 3.43
2 35 4.35 96.57 7.78
3 137 17.06 92.22 24.83
4 182 22.71 75.17 47.54
5 225 27.97 52.46 75.51
6 128 15.88 24.49 91.39
7 69 8.61 8.61 100.00
Total 804 100.00    
Table 6. Frequencies of life satisfaction.
Self created table.

Frequency of positive emotional states regressed on life satisfaction.

Standardized coefficients Standard
X XY deviation of
  Coefficient t statistics Significance standardized standardized X
thrilled 0.38349 4.623 0.000 0.353 0.174 0.921
inspired 0.2623 3.101 0.002 0.251 0.124 0.9572
active 0.24366 3.206 0.001 0.241 0.119 0.988
hostile 0.15043 1.890 0.059 0.137 0.067 0.9088
exhausted -0.19455 -2.743 0.006 -0.197 -0.097 1.0117
insecure -0.22629 -2.918 0.004 -0.220 -0.109 0.974
 43

saddened -0.38392 -4.504 0.000 -0.341 -0.168 0.8885

Pseudo R
squared 0.065
N 788
Table 7. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variables are standardized, respectively, “XY” if both the
dependent variable and the independent variables are standardized. In the last column there is standard
deviation of respective independent variable.

How do you evaluate your life in time period from 2000 until now?
Mean of life
  satisfaction N Std. Deviation
Very bad 2.52 54 1.43
Rather bad 3.87 257 1.18
Rather good 4.89 406 1.18
Very good 5.86 84 1.15
Total 4.50 804 1.45
Table 8. Comparative data: mean of life satisfaction values and life evaluation.
Self-created table using the results of statistical processing techniques.

Importance of values regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
  Coefficient statistics Significance standardized standardized X
importance_wealthy 0.06893 0.976 0.329 0.073 0.038 1.0519
importance_achieve 0.12534 1.513 0.13 0.1222 0.0642 0.9749
importance_leisure 0.18197 2.082 0.037 0.1798 0.0945 0.9881
importance_adventure 0.12951 1.753 0.08 0.1484 0.078 1.1458
importance_creative 0.26289 3.278 0.001 0.2805 0.1473 1.0669
importance_environ -0.15155 -1.754 0.079 -0.1465 -0.077 0.9668
importance_soccap 0.06333 0.662 0.508 0.0547 0.0287 0.8634
importance_family -0.06024 -0.705 0.481 -0.0585 -0.0307 0.9707
importance_polite 0.15339 1.678 0.093 0.1507 0.0792 0.9826
importance_security -0.00432 -0.049 0.961 -0.0041 -0.0022 0.9579
Pseudo R squared 0.027
N 792
Table 9. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variables are standardized, respectively, “XY” if both the
dependent variable and the independent variables are standardized. In the last column there is standard
deviation of respective independent variable.

Creative (In your opinon, how creative (original, talanted) your are in comparison with most of the
people?) regressed on life satisfaction.
Standardized coefficients Standard
X XY deviation of
  Coefficient t statistics Significance standardized standardized X
creative 0.44536 9.473 0.000 0.659 0.341 1.4789
Pseudo R
squared 0.033
N 804
Table 10. Regression on life satisfaction.
 44

Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variables are standardized, respectively, “XY” if both the
dependent variable and the independent variables are standardized. In the last column there is standard
deviation of respective independent variable.

Creative activities index regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
  Coefficient statistics Significance standardized standardized X
creative_act 0.01628 0.982 0.326 0.063 0.035 3.8529
Pseudo R
squared 0.000
N 797
Table 11. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variables are standardized, respectively, “XY” if both the
dependent variable and the independent variables are standardized. In the last column there is standard
deviation of respective independent variable.

Nowadays, it is not neccessary to travel, because you can see everything on TV.
Mean of life
satisfaction N Std. Deviation
Fully disagree 4.74 293 1.48
Rather disagree 4.53 323 1.28
Rather agree 4.05 158 1.59
Fully agree 4.07 27 1.53
Total 4.50 804 1.45
Table 12. Comparative data: mean of life satisfaction values and one’s attitude towards
different activities.
Self-created table using the results of statistical processing techniques.

I always think what my life in the future will be like and take appropriate actions.
Mean of life
satisfaction N Std. Deviation
Completely do not correspond to me 4.33 55 1.68
Rather do not correspond to me 4.39 145 1.30
Rather corresponds to me 4.49 414 1.44
Completely corresponds to me 4.75 110 1.60
Total 4.50 724 1.46
Table 13. Comparative data: mean of life satisfaction values and one’s attitude towards the
future.
Self-created table using the results of statistical processing techniques.

I often do things which will yield result only after many years.
Mean of life
satisfaction N Std. Deviation
Completely do not correspond to me 3.91 65 1.71
Rather do not correspond to me 4.47 268 1.29
Rather corresponds to me 4.46 254 1.50
Completely corresponds to me 4.88 107 1.60
Total 4.48 695 1.48
Table 14. Comparative data: mean of life satisfaction values and one’s attitude towards long-
term thinking.
 45

Self-created table using the results of statistical processing techniques.

One will suceed if he/she will truly strive.

Mean of life Std.
satisfaction N Deviation
Do not belive at all 4.16 7 1.70
Rather do not believe 3.97 56 1.67
No opinion 4.10 110 1.48
Rather believe 4.61 424 1.33
Truly believe 4.63 206 1.54
Total 4.50 804 1.45
Table 15. Comparative data: mean of life satisfaction values and one’s attitude towards self-
reliance.
Self-created table using the results of statistical processing techniques.

Living area
Mean of life satisfaction
N Std. Deviation
Riga 4.64 257 1.42
Other city 4.45 316 1.47
Rural area 4.39 231 1.45
Total 4.50 804 1.45
Table 16. Comparative data: mean of life satisfaction values and living areas.
Self-created table using the results of statistical processing techniques.

Floor space of house/apartment regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
Coefficient statistics Significance standardized standardized X
space 0.008 5.195 0.000 0.332 0.180 39.403
Pseudo R
squared 0.001
N 797
Table 17. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, accordingly “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

Age regressed on life satisfaction.

Standardized coefficients Standard
X XY deviation of
Coefficient t statistics Significance standardized standardized X
age -0.030 -8.063 0.000 -0.525 -0.2781 17.5355
Pseudo R
squared 0.024
N 804
Table 18. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.
 46

Marital status
Mean of life Std.
satisfaction N Deviation
Married or lives together with a partner 4.52 437 1.37
Unmarried 4.95 201 1.47
Married, but do not live together 3.71 13 1.62
Divorced 3.90 73 1.44
Widowed 3.88 81 1.37
Total 4.50 804 1.45
Table 19. Comparative data: mean of life satisfaction values and marital status.
Self-created table using the results of statistical processing techniques.

Education
Mean of life Std.
satisfaction N Deviation
unfinished primary, primary, unfinished
vocational or secondary education 4.47 165 1.55
vocational education 4.29 250 1.39
secondary education 4.36 184 1.52
unfinished higher education 4.93 65 1.55
higher education (bachelor or master degree) 4.86 137 1.18
finished/unfinished doctor’s degree 4.54 2 0.71
Total 4.50 804 1.45
Table 20. Comparative data: mean of life satisfaction values and education level.
Self-created table using the results of statistical processing techniques.

Occupation
Mean of life
satisfaction N Std. Deviation
Hired worker 4.56 439.88 1.34
Self-employed 4.66 34.40 1.52
Employer, entrepreneur 4.70 26.33 1.71
Unemployed 3.48 31.74 1.61
Student (not working full time job) 5.26 100.18 1.33
Housewife 4.65 28.17 1.45
Pensioner 3.87 142.92 1.40
Total 4.495 803.638 1.449
Table 21. Comparative data: mean of life satisfaction values and occupation.
Self-created table using the results of statistical processing techniques.

Household size regressed on life satisfaction

Standardized coefficients Standard
t X XY deviation
  Coefficient statistics Significance standardized standardized of X
household_size 0.309 6.544 0.000 0.421 0.226 1.362
Pseudo R
squared 0.016
N 804
Table 22. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.
 47

Household income per person regressed on life satisfaction.

Standard deviation
Regression 1 Regresison 2 of X
0.493 0.674
hhinc (0.000) (0.000) 202.913
-0.243
hhinc_sq (0.076) 273239.6485
Pseudo R
squared 0.019 0.020
N 715 715
Table 23. Regression on happiness.
Self created table using the results of the regression. P-values of each coefficient are in the
parenthesis below. Only standardized coefficients (independent variables standardized) presented in
the table.

Are you afraid of losing job?

Mean of life
satisfaction N Std. Deviation
Yes 4.16 128 1.48
Rather, yes 4.65 167 1.27
Rather, no 4.74 93 1.36
No 4.56 74 1.43
I do not think about it 4.78 112 1.45
It does not concern me 4.31 229 1.55
Total 4.50 804 1.45
Table 24. Comparative data: mean of life satisfaction values and one’s attitude towards
losing job.
Self-created table using the results of statistical processing techniques.

Trust index regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
Coefficient statistics Significance standardized standardized X
trust 0.47232 1.926 0.054 0.222 0.122 0.4701
Pseudo R
squared 0.004
N 339
Table 25. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

Personal trust index and institutional trust index regressed on life satisfaction.
Standardized coefficients Standard
t X XY deviation of
Coefficient statistics Significance standardized standardized X
personal_trust 0.5133 2.265 0.024 0.252 0.137 0.4907
inst_trust 0.06661 0.410 0.682 0.043 0.023 0.6424
Pseudo R
squared 0.006
N 339
Table 26. Regression on life satisfaction.
 48

Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variables are standardized, respectively, “XY” if both the
dependent variable and the independent variables are standardized. In the last column there is standard
deviation of respective independent variable.

Helpfulness index regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
Coefficient statistics Significance standardized standardized X
helpfulness 0.20727 2.594 0.009 0.166 0.091 0.8011
Pseudo R
squared 0.002
N 804
Table 27. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

Political satisfaction index regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation of
Coefficient statistics Significance standardized standardized X
polit_satisfaction 0.62329 4.923 0.000 0.415 0.223 0.6662
Pseudo R
squared 0.014
N 488
Table 28. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

"Passive" political activity index regressed on life satisfaction.

Standardized coefficients
t X XY Standard
Coefficient statistics Significance standardized standardized deviation of X
pasive_polit_activ 0.08106 0.373 0.709 0.024 0.013 0.2939
Pseudo R
squared 0.000
N 800
Table 29. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

Political activity index regressed on life satisfaction.

Standardized coefficients Standard
t X XY deviation
Coefficient statistics Significance standardized standardized of X
polit_activ -0.1476 -0.655 0.512 -0.041 -0.023 0.2791
 49

Pseudo R
squared 0.000
N 803
Table 30. Regression on life satisfaction.
Self created table using the results of the regression. “X standardized” stands for the coefficient
standardization if only the independent variable is standardized, respectively, “XY” if both the
dependent variable and the independent variable are standardized. In the last column there is standard
deviation of respective independent variable.

Joint regression on life satisfaction

Standardized coefficients Standard
t X XY deviation
  Coefficient statistics Significance standardized standardized of X
Personality
factors      
hard_working 0.237 2.657 0.008 0.208 0.102 0.879
long_term 0.181 2.027 0.043 0.157 0.077 0.869
inactive_life -0.158 -1.661 0.097 -0.130 -0.064 0.828
creative 0.344 5.867 0.000 0.507 0.248 1.474
Socio-
Demographic
factors
edu 0.103 1.213 0.225 0.102 0.050 0.984
spacepers 0.005 1.305 0.192 0.105 0.051 19.121
nationality -0.295 -2.097 0.036 -0.171 -0.083 0.579
divorce_bin -0.606 -2.391 0.017 -0.184 -0.090 0.304
marrsep_bin -0.665 -1.371 0.170 -0.098 -0.048 0.147
widow_bin -0.598 -2.355 0.019 -0.195 -0.095 0.327
stud_bin 0.773 2.691 0.007 0.219 0.107 0.283
male -0.249 -1.543 0.123 -0.124 -0.061 0.499
Economic factors
business_bin 0.331 0.583 0.560 0.054 0.026 0.162
unemply_bin -0.733 -1.771 0.077 -0.139 -0.068 0.189
hhinc 0.001 2.021 0.043 0.169 0.082 130.648
Cultural factors
friends_trust 0.272 2.169 0.030 0.171 0.083 0.626
Institutional
factors
polit_activ -0.127 -0.422 0.673 -0.036 -0.018 0.284

Pseudo R squared 0.070

N 593
Table 31. Joint regression on life satisfaction with marginal effects.
Self created table using the results of the regression. “X standardized” stands for the
coefficient standardization if only the independent variable is standardized, respectively,
“XY” if both the dependent variable and the independent variable are standardized. In the last
column there is standard deviation of respective independent variable.
 Marginal effects
Standardized 1 (fullly 7 (fully
  Coefficients Significance dissatisfied) 2 3 4 5 6 satisfied)
Personality factors  
hard_working 0.208 0.008 -0.0057 -0.0067 -0.0254 -0.0140 0.0193 0.0216 0.0109
long_term 0.157 0.043 -0.0043 -0.0050 -0.0191 -0.0105 0.0145 0.0162 0.0082
-
inactive_life -0.130 0.097 0.0036 0.0042 0.0161 0.0088 -0.0122 0.0136 -0.0069
creative 0.507 0.000 -0.0140 -0.0164 -0.0622 -0.0342 0.0472 0.0528 0.0267
Socio-Demographic factors    
edu 0.102 0.2250 -0.0028 -0.0032 -0.0123 -0.0068 0.0093 0.0104 0.0053
spacepers 0.105 0.1920 -0.0028 -0.0032 -0.0122 -0.0067 0.0092 0.0104 0.0052
-
nationality -0.171 0.0360 0.0048 0.0056 0.0212 0.0117 -0.0161 0.0180 -0.0091
-
divorce_bin -0.184 0.0170 0.0048 0.0057 0.0214 0.0118 -0.0162 0.0182 -0.0092
-
marrsep_bin -0.098 0.1700 0.0023 0.0027 0.0102 0.0056 -0.0078 0.0087 -0.0044
-
widow_bin -0.195 0.0190 0.0050 0.0058 0.0220 0.0121 -0.0167 0.0187 -0.0094
stud_bin 0.219 0.0070 -0.0071 -0.0083 -0.0313 -0.0172 0.0238 0.0266 0.0135
-
male -0.124 0.1230 0.0034 0.0040 0.0153 0.0084 -0.0116 0.0130 -0.0066
Economic factors  
business_bin 0.054 0.560 -0.0016 -0.0019 -0.0072 -0.0040 0.0055 0.0061 0.0031
-
unemply_bin -0.139 0.0770 0.0039 0.0046 0.0174 0.0096 -0.0132 0.0148 -0.0075
hhinc 0.169 0.0430 -0.0047 -0.0054 -0.0206 -0.0113 0.0157 0.0175 0.0089
Cultural factors  
friends_trust 0.171 0.0300 -0.0047 -0.0055 -0.0206 -0.0113 0.0157 0.0175 0.0089
Institutional factors  
-
polit_activ -0.036 0.6730 0.0010 0.0011 0.0043 0.0024 -0.0033 0.0037 -0.0018
Pseudo R squared 0.070  
N 593
Table 32. Joint regression on life satisfaction with marginal effects. Standardized coefficients standardized with respect to independent variable.
 51

Standardized
  Coefficients Significance 1+2 3+4+5 6+7
Personality
factors  
hard_working 0.208 0.008 -0.012 -0.020 0.033
long_term 0.157 0.043 -0.009 -0.015 0.024
inactive_life -0.130 0.097 0.008 0.013 -0.021
creative 0.507 0.000 -0.030 -0.049 0.080
Socio-
Demographic
factors    
edu 0.102 0.225 -0.006 -0.010 0.016
spacepers 0.105 0.192 -0.006 -0.010 0.016
nationality -0.171 0.036 0.010 0.017 -0.027
divorce_bin -0.184 0.017 0.010 0.017 -0.027
marrsep_bin -0.098 0.170 0.005 0.008 -0.013
widow_bin -0.195 0.019 0.011 0.017 -0.028
stud_bin 0.219 0.007 -0.015 -0.025 0.040
male -0.124 0.123 0.007 0.012 -0.020
Economic
factors  
business_bin 0.054 0.560 -0.004 -0.006 0.009
unemply_bin -0.139 0.077 0.009 0.014 -0.022
hhinc 0.169 0.043 -0.010 -0.016 0.026
Cultural factors  
friends_trust 0.171 0.030 -0.010 -0.016 0.026
Institutional
factors  
polit_activ -0.036 0.673 0.002 0.003 -0.006
Pseudo R
squared 0.070  
N 593
Table 33. Joint regression on life satisfaction with marginal effects.
Standardized coefficients standardized with respect to independent variable. Marginal
probabilities calculated based on standardized independent variables. The marginal probabilities
refer to the changes in the probabilities of the life satisfaction outcomes, resulting from one
standard deviation change in the value of the relevant independent variable everything else held
constant. Here only three outcomes of life satisfaction are plausible – “1” (compiled from
previous “1” and”2”), “2” (compiled from previous “3”,”4” and”5”) and “3” (from “6” and
“7”).

Mean values
inactive_life long_term creative hard_working hinc
hired worker 1.86 2.54 4.39 3.94 218.19
self-employed 1.83 2.80 4.88 3.86 212.78
employer, entrepreneur 1.71 3.18 4.64 4.01 334.50
unemployed 2.36 2.51 4.09 3.80 68.39
student (not working full time job) 1.66 2.80 5.18 3.94 152.36
housewife 1.88 2.82 4.08 3.86 160.38
 52

pensioner 2.13 2.38 3.69 4.08 119.65

Total 1.898 2.582 4.372 3.955 188.544
Table 34. Comparative data: mean of different variables and occupation.
Self-created table using the results of statistical processing techniques