Unemployment has been a much bigger problem than inflation for ordinary people research finds

The effects of macroeconomic shocks on well-being (Adapted chosen excerpts by Job Market Monitor to follow).

European monetary policy for the last twenty years has focussed on controlling the inflation rate as its primary objective. It is currently conducted by one central bank covering the seventeen Euro Zone countries and ten other independent central banks for the remaining countries that are EU members and have their own currencies. Most importantly, the two most important – the Bank of England and the European Central Bank have been inflation targetters, although the former is allowed to take account of government policy on growth. This was intended to bring much needed stability. For the period 1997-2007 it appeared this stability had been attained. But since the start of the Great Recession, unemployment has increased rapidly. In the UK, despite inflation being well above target, the MPC’s behaviour suggests that it is concerned about growth and unemployment, even though inflation has been above target, at a time when the UK government has been tightening fiscal policy. The authors estimates of the misery ratio suggest that this is the correct approach if the objective is to maximise national well-being. The ECB has continued to focus on inflation and has kept rates higher than the MPC has and has not had such a loose monetary policy, hence the high levels of unemployment existing in the Eurozone, and especially so in Greece, Portugal, Spain. In the Great Recession, unemployment has been a much bigger problem than inflation for ordinary people.

The main results of this paper can be summarized as follows:

• Unemployment lowers happiness of the unemployed but also the happiness of everyone else.
• A higher proportion of individuals report that unemployment is the major problem the economy faces than is the case for inflation in most countries. Exceptions are the core Eurozone countries such as Germany and the Netherlands.
• Europeans don’t appear to expect unemployment to come down any time soon.
• The majority of respondents in Europe back a deficit financed burst to growth to create jobs.
• Banking crises lowers happiness over and above their effects on inflation and unemployment and there is evidence these effects are long lasting.
• The authors find that the least educated, women and, somewhat surprisingly, the old put the highest weight on unemployment. Conversely, the young, men and the most educated put the greatest weight on inflation.
• They estimate the unemployment/inflation trade-off as approximately 3.8. That is to say a 1 percentage point increase in unemployment lower well-being nearly four times more than an equivalent rise in inflation. Excluding the five main euro area countries that are

  specially worried about inflation – Germany, Austria, France, Finland and Austria – the elasticity rises to over six times.

  Full article @ The effects of macroeconomic shocks on well-being