I Guess That’s Why They Call It the Blues: Macro-Economic Conditions and Subjective Well-Being

Chris Herbst, Arizona State University

A series of papers by Christopher Ruhm provides evidence that short-run economic downturns are associated with an array of health benefits. An open question is whether prevailing economic conditions influence subjective well-being, as reported in survey measures of happiness and life satisfaction. In this project, I establish the relationship between macro-economic conditions and subjective well-being. The analyses rely on novel data from the DDB Needham Life Style Survey, a rich data archive providing access to numerous indicators of well-being. Using repeated cross-sections of Life Style Surveys between 1985 and 2005 (N=75,609) and accounting for unobserved geographic and temporal heterogeneity, I find that economic downturns are associated with reductions in self-reported life satisfaction. A one-percentage-point increase in the unemployment rate reduces the probability of expressing any life satisfaction by 0.6 percentage points. These results stand in contrast to the body of existing evidence that economic downturns render improvements in physical health.