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Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-Being

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  • Wolfers, Justin

    (Stanford U)

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, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-Being," Research Papers 1751r, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:1751r
    as

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    References listed on IDEAS

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    1. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
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    3. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 35-47, June.
    4. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 13-70 National Bureau of Economic Research, Inc.
    5. Andrew Atkeson & Christopher Phelan, 1994. "Reconsidering the Costs of Business Cycles with Incomplete Markets," NBER Chapters,in: NBER Macroeconomics Annual 1994, Volume 9, pages 187-218 National Bureau of Economic Research, Inc.
    6. Michael J. Boskin & Eytan Sheshinski, 1978. "Optimal Redistributive Taxation When Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, Oxford University Press, vol. 92(4), pages 589-601.
    7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    8. Laurence M. Ball, 1997. "Disinflation and the NAIRU," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 167-194 National Bureau of Economic Research, Inc.
    9. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    10. Guy Debelle & Douglas Laxton, 1997. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 249-282, June.
    11. Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 1-37, February.
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    More about this item

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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