Comparing the Effects of Unemployment and Inflation on Happiness

Document Type : Research Paper

Authors

1 Professor of Econometrics & Social Statistics, Department of Economics, Semnan University

2 MA in Economic Sciences, Graduate of Semnan University

Abstract

In fact, happiness (favorability) may be the ultimate goal of any society. Happiness is affected by both unemployment and inflation. The main aim of this paper is to compare the effects of unemployment and inflation on happiness in EEC and Iran. To do so, we used panel data regarding the 2001-2011 period. To compare the effects of unemployment and inflation on happiness, we estimated the model using standardized variables. After conducting the F test and the Hausman test, the parameters were estimated using the Fixed Panel approach. The results indicate that both unemployment and inflation have negative and significant effects on happiness; if each of inflation rate and unemployment rate increases by one standard deviation, happiness will be reduced by about 0.044 and 0.181 of standard deviation respectively. The comparison of the effects of inflation and unemployment on happiness has shown that the effect of unemployment on happiness is considerably more than that of inflation (this is found according to the Wald test). Moreover, if the per capita GDP increases by one standard deviation, happiness will also increase about 0.140 of standard deviation. Thus, in order to enhance happiness, reduction of unemployment should be a preferred policy.

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References

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The Journal of Economic Policy
Volume 8, Issue 15
June 2016
Pages 137-152

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