macroeconomics of happiness

Doug Henwood dhenwood at panix.com
Sun Nov 18 18:17:47 PST 2001


"The Macroeconomics Of Happiness"

BY: RAFAEL DI TELLA

Harvard Business School

ROBERT MACCULLOCH

London School of Economics & Political Science

(LSE)

Department of Economics

ANDREW J. OSWALD

University of Warwick

Department of Economics

Document: Available from the SSRN Electronic Paper Collection:

http://papers.ssrn.com/paper.taf?abstract_id=285918

Paper ID: University of Bonn ZEI Working Paper No. B3

Date: September 17, 2001

Contact: ROBERT MACCULLOCH

Email: Mailto:robertmacculloch at compuserve.com

Postal: London School of Economics & Political Science (LSE)

Department of Economics

Houghton Street

London WC2A 2AE, UK

Phone: +44 20 7955 6960

Fax: +44 20 7955 6951

Co-Auth: RAFAEL DI TELLA

Email: Mailto:rditella at hbs.edu

Postal: Harvard Business School

Morgan Hall 283

Soldiers Field

Boston, MA 02163 USA

Co-Auth: ANDREW J. OSWALD

Email: Mailto:a.j.oswald at warwick.ac.uk

Postal: University of Warwick

Department of Economics

Coventry CV4 7AL, UK

ABSTRACT:

This paper shows that macroeconomic movements have strong

effects on the happiness of nations. First, we find that there

are clear microeconomic patterns in the psychological well-being

levels of a quarter of a million randomly sampled Europeans and

Americans from the 1970's to the 1990's. Happiness equations are

monotonically increasing in income, and have a similar structure

in different countries. Second, movements in reported well-being

are correlated with changes in macroeconomic variables such as

Gross Domestic Product. This holds true after controlling for

the personal characteristics of respondents, country

fixed-effects, year dummies, and country-specific time trends.

Third, the paper establishes that recessions create psychic

losses that extend beyond the fall in GDP and rise in the number

of people unemployed. These losses are large. Fourth, the

welfare state appears to be a compensating force: higher

unemployment benefits are associated with higher national

well-being.

Keywords: Well-being, Happiness, Macroeconomics, Costs of

Business Cycles, Unemployment Insurance



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