Part I: Background

The Misery Index was created by economist Arthur Okun in the 1970s.

During that time, the U.S. economy was grappling with stagflation—a condition where high unemployment and high inflation occurred simultaneously.

Okun’s creation of the Misery Index was a way to simplify the understanding of how these two factors could jointly cause economic distress.

Part II: Misery Index

The Misery Index is a simple economic indicator that aims to quantify the economic distress or “misery” experienced by a population. It combines the two most direct economic factors that affect people’s everyday lives: unemployment and inflation.

$$\text{Misery Index}=\text{Unemployment Rate }+\text{Inflation Rate}$$

• Unemployment Rate: The percentage of people in the labor force who are willing and able to work but cannot find jobs.

• Inflation Rate: The percentage change in the general price level of goods and services in an economy over time.

It measures the degree of economic distress, felt by every people, due to risk of joblessness combined with an increasing cost of living.

Part III: Interpretation of the Misery Index

1. Let’s take an example of Country X where:

   • Unemployment Rate: 7%

   • Inflation Rate: 3%

   • The Misery Index for Country X would be = 7% + 3% = 10

2. Now, in another scenario, suppose in Country Y:

   • Unemployment Rate: 10%

   • Inflation Rate: 6%

   • The Misery Index for Country Y would be = 10% + 6% = 16

3. Higher Misery Index: A higher Misery Index suggests worse economic conditions, where high inflation combined with high unemployment leads to significant economic hardship.

4. Lower Misery Index: A lower Misery Index indicates a healthier economy. It suggests relatively less economic misery, with low inflation and low unemployment.