Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing

Stanford GSB Research Paper No. 1751

28 Pages Posted: 8 Aug 2002

See all articles by Justin Wolfers

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

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Date Written: December 2002

Abstract

This paper analyzes the effects of business cycle volatility on measures of subjective well-being, including self-reported happiness and life satisfaction. I find robust evidence that high inflation and, to a greater extent, unemployment lower perceived well-being. Greater macroeconomic volatility also undermines well-being. These effects are moderate but important: eliminating unemployment volatility would raise well-being by an amount roughly equal to that from lowering the average level of unemployment by a quarter of a percentage point. The effects of inflation volatility on well-being are less easy to detect and are likely smaller.

Keywords: happiness, subjective well-being, inflation, unemployment, welfare costs of business cycles, business cycles, volatility

JEL Classification: E30, E31, E32, E0, E5, E60, I31

Suggested Citation

Wolfers, Justin, Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing (December 2002). Stanford GSB Research Paper No. 1751, Available at SSRN: https://ssrn.com/abstract=319164 or http://dx.doi.org/10.2139/ssrn.319164

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