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Social Psychology, Unemployment and Macroeconomics

  • William A. Darity
  • Arthur H. Goldsmith

In a conventional macroeconomic model, following a policy change, as nominal wages adjust the economy returns to its original real levels of employment, output, and unemployment. This description of events ignores the social psychological consequences of exposure to unemployment. On theoretical grounds, unemployment is expected to damage psychological health, which in turn harms personal productivity. Empirical work supports both of these propositions. This paper presents a 'behavioral' macroeconomic model that accounts for elements of simultaneity between employment outcomes and psychological well-being. Implications of this model for the 'natural' rate hypothesis, the concept of full employment, and unemployment hysteresis are explored.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.10.1.121
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 10 (1996)
Issue (Month): 1 (Winter)
Pages: 121-140

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Handle: RePEc:aea:jecper:v:10:y:1996:i:1:p:121-40
Note: DOI: 10.1257/jep.10.1.121
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  1. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  2. George W. Stadler, 1994. "Real Business Cycles," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1750-1783, December.
  3. William Darity, Jr. & Arthur H. Goldsmith, 1993. "Unemployment, Social Psychology, and Unemployment Hysteresis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(1), pages 55-71, October.
  4. Akerlof, George A & Yellen, Janet L, 1985. "Unemployment through the Filter of Memory," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 747-73, August.
  5. Kim B. Clark & Lawrence H. Summers, 1979. "Labor Market Dynamics and Unemployemnt: A Reconsideration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 10(1), pages 13-72.
  6. William F. Lott & Stephen M. Miller, 1982. "Employers' and Workers' Inflation Expectations: Prediction Accuracy and the Natural-Rate Hypothesis," Eastern Economic Journal, Eastern Economic Association, vol. 8(4), pages 283-288, Oct-Dec.
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