Although unemployment is often used as a measure of labor market inefficiency, economic theory indicates that market inefficiency is determined by both the gap between and the elasticities of supply and demand. Using time series data for the United States and United Kingdom, this article investigates how good the unemployment rate is as a measure of labor market inefficiency by calculating the deadweight loss associated with unemployment rates over time. Results show that the loss arising from unemployment is low across time and countries and that the unemployment rate is often a weak proxy for comparing labor market inefficiency. (JEL J6) Copyright 2006, Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
Volume (Year): 44 (2006) Issue (Month): 4 (October) Pages: 629-643 Download reference. The following formats are available: HTML
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