Although the rate of layoffs dropped considerably in the early 2000s and unemployment started falling, Chinese people’s concerns about jobs and safety-net benefits persisted.

Worries about job security are reflected in feelings of financial satisfaction. In 2007, only 27 percent of Chinese in the lowest third of the income distribution expressed satisfaction with their financial situation, down from 42 percent in 1990. Evidence of a fraying social safety net is indicated by the decline in self-reported health among the bottom third: those reporting that their health was good or very good dropped to 44 percent, compared with 54 percent in 1990.

China’s transition has been similar in several respects to the transitions of countries in Central and Eastern Europe, for which we have similar life-satisfaction data. In almost all countries, life satisfaction initially declined and then recovered to numbers somewhat below pre-transition levels. The U-shaped pattern in happiness was accompanied by the emergence of widespread joblessness, the dissolution of the safety net and a subsequent modest recovery.

The similarity ends there, however. In Europe, growth initially fell sharply before rebounding, tracking life-satisfaction numbers. In China, life satisfaction declined as output and consumption rapidly expanded. The difference shows that economic growth is not enough; job security and a social safety net are also critical to people’s happiness.

What can we learn from China’s transition? Certainly not that China should return to socialism and the gross inefficiencies of central planning. But its market transition has given birth to increasing concerns among everyday Chinese about such matters as finding and holding a job, the availability of reliable and affordable health care, and provision for children and the elderly. To its credit, the Chinese government has taken some steps in recent years to broaden and improve unemployment and pension benefits, as well as to upgrade the health care system. But the safety net remains in need of substantial repair.

It is noteworthy that at a time when the need for a strong safety net is under attack in the United States, the world’s most fervent capitalist nation has inadvertently demonstrated its critical importance for people’s happiness.