Misery Index Showing Signs of Strain

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There is no shortage of metrics for measuring growth and inflation but how do we measure economic happiness? The Misery Index, a straightforward economic indicator created by Arthur Okun during the 1960s, reflects the average citizen's economic well-being by summing the annual inflation rate and the seasonally adjusted unemployment rate. While annual inflation data traces back to 1914, unemployment figures — and consequently the Misery Index — are only available from 1948 onward.

A study published in the American Economic Review, “Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness," suggests that unemployment contributes to 1.7 times more misery than inflation. Therefore, it proposes that the Misery Index could more accurately reflect economic discomfort if unemployment figures were multiplied by 1.7 before being added to inflation rates, although this is not the current practice for calculating the index.

The misery index, which had dipped to near historic lows of 5.21% in September 2019, experienced a modest rise to 5.94% by March 2020. However, April saw a dramatic leap to 15.03%, propelled by a sudden spike in unemployment to 14.7% during the COVID-19 lockdowns, even as inflation remained negligible at 0.33%. At present, the index hovers slightly above 7. This means, in theory, people are 37.2% more miserable than pre-pandemic levels. Or if you are a glass-half-full person, people are 37.2% less happy than pre-pandemic levels.

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