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

28 Pages Posted: 11 Apr 2003  

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

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Date Written: April 2003

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.

Suggested Citation

Wolfers, Justin, Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing (April 2003). NBER Working Paper No. w9619. Available at SSRN: https://ssrn.com/abstract=394727

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