With happy we are more productive: Evidence from total factor productivity

Abstract

This study examines the relationship between local happiness and firm total factor productivity at the firm level. We find that local happiness is positively associated with firms’ total factor productivity. Our mechanism analysis indicates that local happiness improves firms’ total factor productivity by attracting human and capital resources, promoting labor productivity, and stimulating innovation. We also find that the positive effect of local happiness on total factor productivity is more pronounced in firms with low human capital, firms located in regions with advanced digital infrastructure, and in non-state-owned firms. Our research offers recommendations for governments on how to prioritize people's well-being and achieve economic objectives.