The Private and Social Costs of Unemployment

13 Pages Posted: 15 Feb 2001 Last revised: 13 Aug 2010

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER) (deceased); Harvard University (deceased)

Date Written: December 1977

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

Feldstein, Martin S., The Private and Social Costs of Unemployment (December 1977). NBER Working Paper No. w0223, Available at SSRN: https://ssrn.com/abstract=260414

Martin S. Feldstein (Contact Author)

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