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The Private and Social Costs of Unemployment


  • Feldstein, Martin S


This short note emphasizes and illustrates two basic points: (1) The private costs of unemployment, i.e., the costs borne by the unemployed themselves, vary substantially and are often extremely low. This low private cost is an important cause of the permanently high unemployment rate in the United States. (2) The social costs of unemployment, i.e., the costs of unemployment to the nation as a whole regardless of how they are distributed, must be judged by considering the specific policy by which a worker would be reemployed. It is wrong to regard unemployment as either without cost (because the unemployed enjoy the opportunity for job search and leisure) or as having a cost equal to lost output. Examples are given to show that output may overstate or understate true social cost, depending on the options available for reemployment.
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Suggested Citation

  • Feldstein, Martin S, 1978. "The Private and Social Costs of Unemployment," American Economic Review, American Economic Association, vol. 68(2), pages 155-158, May.
  • Handle: RePEc:aea:aecrev:v:68:y:1978:i:2:p:155-58

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    References listed on IDEAS

    1. Martin Neil Baily, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 37-50.
    2. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    3. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    4. Phelps, Edmund S., 1977. "Indexation issues: A comment on the blinder and Fischer papers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 5(1), pages 149-168, January.
    5. Grossman, Herschel I, 1977. " Risk Shifting and Reliability in Labor Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 187-209.
    6. Martin S. Feldstein, 1975. "The Importance of Temporary Layoffs: An Empirical Analysis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(3), pages 725-745.
    7. Robert E. Hall, 1975. "The Rigidity of Wages and the Persistence of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 301-350.
    8. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
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    Cited by:

    1. Douglas A. Hibbs, Jr., 1982. "Public Concern about Inflation and Unemployment in the United States: Trends, Correlates, and Political Implications," NBER Chapters,in: Inflation: Causes and Effects, pages 211-232 National Bureau of Economic Research, Inc.
    2. repec:ind:nipfwp:19 is not listed on IDEAS
    3. Grady, Patrick, 1986. "Background Paper on Full Employment," MPRA Paper 26328, University Library of Munich, Germany.
    4. repec:npf:wpaper:19 is not listed on IDEAS
    5. Bastianen, R.D. & Butter, F.A.G. den & Ours, J.C., 1991. "Welfare losses of non-participation in employment," Serie Research Memoranda 0070, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    6. Paul R. Flacco & Leroy O. Laney & Marie C. Thursby & Thomas D. Willett, 1984. "Exchange Rates And Trade Policy," Contemporary Economic Policy, Western Economic Association International, vol. 2(4), pages 6-18, January.
    7. James Tobin, 1983. "Macroeconomics Under Debate," Cowles Foundation Discussion Papers 669, Cowles Foundation for Research in Economics, Yale University.
    8. Jon D. Wisman & Aaron Pacitti, 2017. "Guaranteed Employment and Universal Child Care For a New Social Contract," Working Papers 2017-05, American University, Department of Economics.
    9. Haroon Bhorat & David Tseng, 2012. "The Newly Unemployed and the UIF Take-up Rate in the South African Labour Market," Working Papers 12147, University of Cape Town, Development Policy Research Unit.
    10. Sridhar, Kala Seetharam, 2000. "Tax Incentive Programs and Unemployment Rate," The Review of Regional Studies, Southern Regional Science Association, vol. 30(3), pages 275-298, Winter.
    11. Fernando Coloma & Bernardita Vial, 2003. "Desempleo e Inactividad Juvenil en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(119), pages 149-171.
    12. Nabi, Mahmoud Sami & Boughzala, Mongi, 2009. "Essai de chiffrage du coût social du chômage des jeunes diplômés en Tunisie
      [Social cost of young unemployed graduates in Tunisia]
      ," MPRA Paper 84438, University Library of Munich, Germany.

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