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A Compensation Measure of the Cost of Unemployment to the Unemployed

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  • Michael Hurd

Abstract

Under the assumption that unemployment is the result of job rationing, Hicks's compensating variation measures the payment that would make a worker indifferent between employment at his desired annual hours and rationed employment. This theory is applied at the individual level to find the compensation for the rationing. It varies according to the position of the compensated labor supply function, the wage rate, and the duration of unemployment. The individual measures are aggregated for each year from 1967 through 1975. The aggregate measure varies sharply with the level of unemployment; but it is small when compared with more conventional measures such as the difference between actual GNP and potential GNP.

Suggested Citation

  • Michael Hurd, 1980. "A Compensation Measure of the Cost of Unemployment to the Unemployed," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(2), pages 225-243.
    • Handle: RePEc:oup:qjecon:v:95:y:1980:i:2:p:225-243.
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    File URL: http://hdl.handle.net/10.2307/1885497
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    Cited by:

    1. Burda, Michael C. & Hamermesh, Daniel S., 2010. "Unemployment, market work and household production," Economics Letters, Elsevier, vol. 107(2), pages 131-133, May.
    2. Christopher J. O'Leary, 1990. "An Econometric Analysis of Unemployment Insurance Benefit Adequacy," Upjohn Working Papers 90-05, W.E. Upjohn Institute for Employment Research.
    3. Daniel S. Hamermesh, 2019. "The labor market in the US, 2000–2018," IZA World of Labor, Institute of Labor Economics (IZA), pages 361-361, May.
    4. Anthony Shorrocks, 2009. "On the measurement of unemployment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 7(3), pages 311-327, September.
    5. Manimay Sengupta, 2009. "Unemployment duration and the measurement of unemployment," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 7(3), pages 273-294, September.
    6. Gerlach, Knut & Stephan, Gesine, 1996. "A paper on unhappiness and unemployment in Germany," Economics Letters, Elsevier, vol. 52(3), pages 325-330, September.
    7. Inna Petrunyk & Christian Pfeifer, 2018. "Shortening the potential duration of unemployment benefits and labor market outcomes: Evidence from a natural experiment in Germany," Working Paper Series in Economics 377, University of Lüneburg, Institute of Economics.
    8. Lam, P.M. & Family, F., 1991. "End-point distribution and structure function of polymers," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 171(2), pages 223-231.
    9. Jahn, Elke J. & Wagner, Thomas, 2005. "Contractual Employment Protection and the Scarring Risk of Unemployment," IZA Discussion Papers 1813, Institute of Labor Economics (IZA).
    10. Hotchkiss, Julie L. & Moore, Robert E. & Rios-Avila, Fernando, 2020. "Cost of policy choices: A microsimulation analysis of the impact on family welfare of unemployment and price changes," Journal of Macroeconomics, Elsevier, vol. 63(C).
    11. Hamermesh, Daniel S & Wolfe, John R, 1990. "Compensating Wage Differentials and the Duration of Wage Loss," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages 175-197, January.
    12. Christopher J. O'Leary & Murray Rubin, 1997. "Adequacy of the Weekly Benefit Amount," Book chapters authored by Upjohn Institute researchers, in: Christopher J. O'Leary & Stephen A. Wandner (ed.), Unemployment Insurance in the United States: Analysis of Policy Issues, chapter 5, pages 163-210, W.E. Upjohn Institute for Employment Research.
    13. Namkee Ahn, & Juan F. Jimeno & Arantza Ugidos, "undated". "“Mondays at the sun”: Unemployment, Time Use, and Consumption Patterns in Spain," Working Papers 2003-18, FEDEA.

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