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Is Unemployment More Costly Than Inflation?

  • David G. Blanchflower

Previous literature has found that both unemployment and inflation lower happiness. This paper extends the literature by looking at more countries over a longer time period. It also considers the impacts on happiness of GDP per capita and interest rates. I find, conventionally, that both higher unemployment and higher inflation lower happiness. Interest rates are also found to enter happiness equations negatively. Changes in GDP per capita have little impact on more economically developed countries, but do have a positive impact in the poorest countries -- consistent with the Easterlin hypothesis. I find that unemployment depresses well-being more than inflation. The least educated and the old are more concerned about unemployment than inflation. Conversely, the young and the most educated are more concerned about inflation. An individual's experience of high inflation over their adult lifetime lowers their current happiness over and above the effects from inflation and unemployment. Unemployment appears to be more costly than inflation in terms of its impact on wellbeing.

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File URL: http://www.nber.org/papers/w13505.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13505.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13505
Note: LS ME EFG
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  1. Gardner, Jonathan & Oswald, Andrew J., 2007. "Money and mental wellbeing: A longitudinal study of medium-sized lottery wins," Journal of Health Economics, Elsevier, vol. 26(1), pages 49-60, January.
  2. David G. Blanchflower, 2008. "International evidence on well-being," NBER Working Papers 14318, National Bureau of Economic Research, Inc.
  3. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing," NBER Working Papers 9619, National Bureau of Economic Research, Inc.
  4. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
  5. Blanchflower, David G. & Oswald, Andrew J., 2004. "Well-being over time in Britain and the USA," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1359-1386, July.
  6. Blanchflower, David G. & Oswald, Andrew J., 2007. "Hypertension and Happiness across Nations," The Warwick Economics Research Paper Series (TWERPS) 792, University of Warwick, Department of Economics.
  7. David G. Blanchflower, 1990. "Fear, Unemployment and Pay Flexibility," NBER Working Papers 3365, National Bureau of Economic Research, Inc.
  8. Rafael Di Tella & Robert MacCulloch, 2006. "Some Uses of Happiness Data in Economics," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 25-46, Winter.
  9. Daniel Kahneman & Alan B. Krueger & David Schkade & Norbert Schwarz & Arthur Stone, 2004. "Toward National Well-Being Accounts," American Economic Review, American Economic Association, vol. 94(2), pages 429-434, May.
  10. David G. Blanchflower & Andrew Oswald, 2000. "The Rising Well-Being of the Young," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 289-328 National Bureau of Economic Research, Inc.
  11. Blanchflower, David G. & Shadforth, Chris, 2007. "Entrepreneurship in the UK," Foundations and Trends(R) in Entrepreneurship, now publishers, vol. 3(4), pages 257-364, July.
  12. Andrew Leigh & Justin Wolfers, 2006. "Happiness and the Human Development Index: Australia Is Not a Paradox," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 176-184, 06.
  13. David G. Blanchflower & Andrew J. Oswald, 2005. "Happiness and the Human Development Index: The Paradox of Australia," NBER Working Papers 11416, National Bureau of Economic Research, Inc.
  14. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, University of Bonn, ZEI - Center for European Integration Studies.
  15. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  16. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  17. David G. Blanchflower & Richard B. Freeman, 2000. "Youth Employment and Joblessness in Advanced Countries," NBER Books, National Bureau of Economic Research, Inc, number blan00-1, September.
  18. David G. Blanchflower & Andrew Oswald, 2007. "Is Well-being U-Shaped over the Life Cycle?," NBER Working Papers 12935, National Bureau of Economic Research, Inc.
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