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The Private and Social Costs of Unemployment

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  • Martin Feldstein

Abstract

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.

Suggested Citation

  • Martin Feldstein, 1977. "The Private and Social Costs of Unemployment," NBER Working Papers 0223, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0223
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    Cited by:

    1. Byron Gangnes, 2010. "The Employment Effects of Fiscal Policy: How Costly are ARRA Jobs?," Working Papers 2010-16, University of Hawaii Economic Research Organization, University of Hawaii at Manoa.
    2. 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.
    3. Franco Modigliani & Lucas Papademos, 1978. "Optimal demand policies against stagflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 736-782, December.
    4. Uysal, Pinar & Yotov, Yoto V. & Zylkin, Thomas, 2015. "Firm heterogeneity and trade-induced layoffs: An empirical investigation," European Economic Review, Elsevier, vol. 75(C), pages 80-97.
    5. Grady, Patrick, 1986. "Background Paper on Full Employment," MPRA Paper 26328, University Library of Munich, Germany.
    6. James Tobin, 2019. "Cycles in macroeconomic theory," Indian Economic Review, Springer, vol. 54(1), pages 159-178, December.
    7. 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.
    8. James Tobin, 1983. "Macroeconomics Under Debate," Cowles Foundation Discussion Papers 669, Cowles Foundation for Research in Economics, Yale University.
    9. 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.
    10. 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.
    11. 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.
    12. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    13. repec:ind:nipfwp:19 is not listed on IDEAS
    14. Burdett, Kenneth, 1987. "Optimal Firm Size, Taxes, and Lay-offs," Working Paper Series 183, Research Institute of Industrial Economics.
    15. repec:npf:wpaper:19 is not listed on IDEAS
    16. 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.
    17. 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.
    18. Noel Gaston, 1992. "A Characterization of Australian Unemployment Compensation: An Analysis of Labour Market Adjustment," The Economic Record, The Economic Society of Australia, vol. 68(3), pages 247-253, September.
    19. 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.
    20. Sridhar, Kala Seetharam, 2004. "Impact of the enterprise zone," Working Papers 04/19, National Institute of Public Finance and Policy.

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