Title: The effects of macroeconomic shocks on well-being
Abstract:Previous literature has found that both unemployment and inflation lower happiness. The macroeconomist Arthur Okun characterised the negative effects of unemployment and inflation by the misery index ...Previous literature has found that both unemployment and inflation lower happiness. The macroeconomist Arthur Okun characterised the negative effects of unemployment and inflation by the misery index the sum of the unemployment and inflation rates. This paper extends the literature by looking at more countries over a longer time period. We find, conventionally, that both higher unemployment and higher inflation lower happiness. We also discover that unemployment depresses well-being more than inflation. We characterise this wellbeing trade-off between unemployment and inflation using what we describe as the misery ratio. Our estimates with European data imply that a one percentage point increase in the unemployment rate lowers well being by two and a half times as much as a one percentage point increase in the inflation rate. We also find that banking crises lower individual well-being, including crises before the Great Recession.Read More
Publication Year: 2013
Publication Date: 2013-01-01
Language: en
Type: article
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Cited By Count: 7
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