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This paper is an attempt to test the hypothesis that utility depends on income relative to a 'comparison' or reference level. Using data on 5,000 British workers, it provides two findings. First, workers' reported satisfaction levels are shown to be inversely related to their comparison wage rates. Second, holding income constant, satisfaction levels are(More)
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Modern macroeconomics textbooks rest upon the assumption of a social welfare function defined on inflation, π, and unemployment, U. 2 However, no formal evidence for the existence of such a function has been presented in the literature. 3 Although an optimal policy rule cannot be chosen unless the parameters of the presumed W(π, U) function are known, that(More)
We show that macroeconomic movements have strong effects on the happiness of nations. First, we find that there are clear microeconomic patterns in the psychological well-being levels of a quarter of a million randomly sampled Europeans and Americans from the 1970's to the 1990's. Happiness equations are monotonically increasing in income, and have a(More)
three anonymous referees and participants in many seminars for discussions and comments. We are very grateful to thank Rebecca Blank, Eliana La Ferrara, Jeff Perloff and Ximing Wu for generous help with data. Min Shi provided excellent research assistance. Alesina gratefully acknowledges financial support form the NSF through the NBER. Abstract We study the(More)
One of the most striking features of European labour markets is the high incidence of long-term unemployment. In this paper we review the literature on its causes and consequences. Our main conclusions are that: C the rise in the incidence of long-term unemployment has been 'caused' by a collapse of outflow rates at all durations of unemployment C while the(More)
We present evidence that psychological well-being is U-shaped through life. A difficulty with research on this issue is that there are likely to be omitted cohort effects (earlier generations may have been born in, say, particularly good or bad times). First, using data on 500,000 randomly sampled Americans and West Europeans, the paper designs a test that(More)
The paper suggests a new test for rent-sharing in the U.S. labor market. Using an unbalanced panel from the manufacturing sector, it shows that a rise in a sector's profitability leads after some years to an increase in the long-run level of wages in that sector. The paper controls for workers' characteristics, for industry fixed-effects, and for unionism.(More)
A hallmark of modern labor economics is the close interplay between the development of theory, data sources and econometric testing. The evolution of the economic analysis of unemployment insurance provides a good illustration. New theoretical approaches, in particular job-search theory, have inspired a large amount of empirical research, some of it(More)