The trade-off between unemployment and inflation
|Speaker:||David G. Blanchflower , Dartmouth College|
|Date:||Wednesday 9 November 2011|
Previous literature has found that both unemployment and inflation lower happiness. The macroeconomist Arthur Okun characterised the negative effects of unemployment and inflation by the misery index - the sum of the unemployment and inflation rates. This paper extends the literature by looking at more countries over a longer time period. We find, conventionally, that both higher unemployment and higher inflation lower happiness. We also discover that unemployment depresses well-being more than inflation. We characterise this wellbeing tradeoff between unemployment and inflation using what we describe as the misery ratio. Our estimates with European data imply that a one percentage point increase in the unemployment rate lowers well being by two and a half times as much as a one percentage point increase in the inflation rate.