Stanford GSB Research Paper No. 1751
28 Pages Posted: 8 Aug 2002
Date Written: December 2002
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: 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