Well‐being during the Great Recession: new evidence from a measure of multi‐dimensional living standards with heterogeneous preferences

We develop a distribution‐adjusted welfare measure that aggregates income, unemployment, and longevity using individual weights that reflect heterogeneous preferences. The measure is implemented for 28 OECD countries for 2008–2013 to gauge the welfare effects of the Great Recession. Estimated shadow prices of one percentage point of unemployment and one year of longevity average 3.1 percent and 5.7 percent of household income, respectively. We find that the rate of GDP growth poorly reflects the social cost of the Great Recession. On average, GDP per capita stagnated across OECD countries between 2008 and 2013 while living standards of poor households fell by 5.3 percent annually.