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