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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. 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.
  2. Bruno S. Frey & Alois Stutzer, . "What can Economists Learn from Happiness Research?," IEW - Working Papers 080, Institute for Empirical Research in Economics - University of Zurich.
  3. Blanchflower, D., 1989. "Fear, Unemployment And Pay Flexibility," Papers 344, London School of Economics - Centre for Labour Economics.
  4. Wolfers, Justin, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well-Being," International Finance, Wiley Blackwell, vol. 6(1), pages 1-26, Spring.
  5. 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).
  6. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
  7. Blanchflower, David G. & Oswald, Andrew J., 2007. "Hypertension and Happiness across Nations," IZA Discussion Papers 2633, Institute for the Study of Labor (IZA).
  8. 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.
  9. Blanchflower, David G. & Shadforth, Chris, 2007. "Entrepreneurship in the UK," IZA Discussion Papers 2818, Institute for the Study of Labor (IZA).
  10. Leigh, Andrew & Wolfers, Justin, 2006. "Happiness and the Human Development Index: Australia is NOT a Paradox," CEPR Discussion Papers 5476, C.E.P.R. Discussion Papers.
  11. 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.
  12. David G. Blanchflower, 2008. "International evidence on well-being," NBER Working Papers 14318, National Bureau of Economic Research, Inc.
  13. 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.
  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. 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.
  16. Blanchflower, David G. & Oswald, Andrew J., 2007. "Is Well-being U-Shaped over the Life Cycle?," The Warwick Economics Research Paper Series (TWERPS) 826, University of Warwick, Department of Economics.
  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.
  18. 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.
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