Real Income, Unemployment and Subjective Well-Being: Revisiting the Costs and Benefits of Inflation Reduction in Canada

Roderick Hill

Canadian Public Policy, 2000, vol. 26, issue 4, 399-414

Abstract: The benefits of disinflation have often been thought of as the discounted value of the net income increases that might result. This weighs lower incomes from higher short-term unemployment against expected long-term income increases. Such measures of economic welfare typically find large net gains from disinflation. However, studies of subjective well-being show that this overstages gains in individuals' well-being because unemployment has significant non-monetary costs, while higher average incomes may not be associated with significant increases in average well-being. A simulation of the 1990s disinflation in Canada shows that a net loss in average well-being could result. Only if lower inflation raises well-being directly are significant net gains possible.

Date: 2000
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