Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well‐Being

Abstract This paper analyses the effects of business cycle volatility on measures of subjective well‐being, including self‐reported happiness and life satisfaction. I find robust evidence that high inflation and, to a greater extent, unemployment lower perceived well‐being. Greater macroeconomic volatility also undermines well‐being. These effects are moderate but important: eliminating unemployment volatility would raise well‐being by an amount roughly equal to that from lowering the average level of unemployment by a quarter of a percentage point. The effects of inflation volatility on well‐being are less easy to detect and are likely smaller.