NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Private and Social Costs of Unemployment

Martin Feldstein

NBER Working Paper No. 223
Issued in December 1977

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.

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Document Object Identifier (DOI): 10.3386/w0223

Published: Feldstein, Martin S. "The Private and Social Costs of Unemployment." The American Economic Review, Vol. 68, No. 2, (May 1978), pp. 155-158.

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