Is Unemployment More Costly Than Inflation?

Abstract

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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