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This study examines the short-run and long-run relationships between happiness and two economic variables, namely income and unemployment. Drawing from a sample of eleven European countries over a time period of 36 years spanning 1985–2020, we find that both income and unemployment have a significant impact on happiness levels. In particular, the results show that higher income leads to higher happiness in the long-run, but the short-run impact is rather weak. Moreover, unemployment decreases people’s happiness levels both in the short and in the long-run, emphasizing the need for European policies directed to job creation.

Impact of income and unemployment on happiness: panel data evidence for European countries