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

Stanford GSB Research Paper No. 1751

28 Pages Posted: 8 Aug 2002  

Justin Wolfers

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

Multiple version iconThere are 2 versions of this paper

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

Justin Wolfers (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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The Ford School of Public Policy, University of Michigan ( email )

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The Brookings Institution ( email )

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Peterson Institute for International Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Institute for the Study of Labor (IZA)

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Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Kiel Institute for the World Economy ( email )

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