Well-being and Productivity: A Capital Stocks Approach

In the widely used capital stocks approach to conceptualizing intergenerational wellbeing, the well-being of the current generation is considered a function of produced capital, human capital (labour), social capital, and natural capital. Most discussion of the sustainability of levels of well-being into the future is focused on considering whether the quantity of these capital stocks left for future generations will be the same, larger, or smaller than the quantity available to the current generation. However, the efficiency with which the capital stocks are used to produce well-being also matters. Because the capital stocks approach is grounded in a framework with strong parallels to that underpinning growth accounting, total factor productivity (TFP) provides a potentially useful way of examining this issue. This article explores the relationship between well-being and TFP. An econometric approach is used to develop methodologically comparable estimates of traditional TFP (where the output in question is national income) and total well-being productivity (where the output is mean national life satisfaction). The differences between the two measures are compared and the impact on this of confounding factors — including the roles of social capital, natural capital, and cultural bias in responses to subjective well-being measures — is explored. We find that there are large differences in total well-being productivity across countries. More generally, interpreting the capital stocks model in terms of an aggregate production function for well-being produces plausible results.