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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. Leigh, Andrew & Wolfers, Justin, 2006. "Happiness and the Human Development Index: Australia Is Not a Paradox," IZA Discussion Papers 1916, Institute for the Study of Labor (IZA).
  2. Gardner, Jonathan & Oswald, Andrew J., 2006. "Money and Mental Wellbeing: A Longitudinal Study of Medium-Sized Lottery Wins," IZA Discussion Papers 2233, Institute for the Study of Labor (IZA).
  3. Blanchflower, David G & Oswald, Andrew J, 2005. "Happiness and the Human Development Index : The Paradox of Australia," The Warwick Economics Research Paper Series (TWERPS) 726, University of Warwick, Department of Economics.
  4. Blanchflower, David G. & Oswald, Andrew J., 2007. "Is Well-Being U-Shaped over the Life Cycle?," IZA Discussion Papers 3075, Institute for the Study of Labor (IZA).
  5. Blanchflower, David G, 1991. "Fear, Unemployment and Pay Flexibility," Economic Journal, Royal Economic Society, vol. 101(406), pages 483-96, May.
  6. Blanchflower, David G. & Oswald, Andrew J., 2007. "Hypertension and Happiness across Nations," The Warwick Economics Research Paper Series (TWERPS) 828, University of Warwick, Department of Economics.
  7. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  8. Blanchflower, D.G. & Oswald, A.J., 1998. "The Rising Well-Being of the Young," The Warwick Economics Research Paper Series (TWERPS) 519, University of Warwick, Department of Economics.
  9. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Wellbeing," NBER Working Papers 9619, National Bureau of Economic Research, Inc.
  10. Robert J. MacCulloch & Rafael Di Tella & Andrew J. Oswald, 2001. "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," American Economic Review, American Economic Association, vol. 91(1), pages 335-341, March.
  11. 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, June.
  12. Blanchflower, David G. & Shadforth, Chris, 2007. "Entrepreneurship in the UK," IZA Discussion Papers 2818, Institute for the Study of Labor (IZA).
  13. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  14. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  15. 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.
  16. 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.
  17. 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.
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