Vulnerability, Unemployment and Poverty: A New Class of Measures, its Axiomatic Properties and Applications

BREAD Working Paper No. 069

Posted: 15 Apr 2005

See all articles by Kaushik Basu

Kaushik Basu

Cornell University - Department of Economics; IZA Institute of Labor Economics; Brookings Institution

Patrick James Nolen

Cornell University - Department of Economics

Date Written: May 2004

Abstract

Measures of unemployment and poverty have tended to focus solely on those currently unemployed or below the poverty line. This approach has ignored the members of society that are vulnerable to becoming unemployed or falling into poverty. Current literature in this area has implicitly assumed that since someone who is vulnerable experiences pain from the chance of becoming unemployed or falling into poverty, our standard measures of unemployment and poverty do not accurately account for this pain. The implication is that vulnerability is a 'bad' and policies should aim to reduce the number of people who are vulnerable in a society. In this paper we argue that, at the macro level, vulnerability can be viewed as a 'good' because, with unemployment remaining constant, the presence of vulnerable people implies that there must also exist currently unemployed people who expect to find work in the near future. And a society where unemployment is more equitably shared is better than a society where the burden of unemployment is carried by only a few. Given this view of vulnerability we then suggest a class of measures that, unlike the standard unemployment rate, account for the amount of vulnerability that exists in a society. We show some attractive axioms that our measure satisfies, fully characterize our measure and apply it to data from the U.S. and South Africa.

Keywords: Vulnerability, unemployment, poverty, welfare

JEL Classification: I32, J64, D63

Suggested Citation

Basu, Kaushik and Nolen, Patrick James, Vulnerability, Unemployment and Poverty: A New Class of Measures, its Axiomatic Properties and Applications (May 2004). BREAD Working Paper No. 069. Available at SSRN: https://ssrn.com/abstract=688590

Kaushik Basu

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States
607-255-2525 (Phone)
607-255-2818 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

Patrick James Nolen (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

HOME PAGE: http://people.cornell.edu/pages/pjn7

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