chapter  4
22 Pages


ByChris Pissarides, Jonathan Wadsworth

Unemployment is a key variable. The performance of the labour market, and sometimes the entire economic record of governments, are judged by what happens to unemployment. Why should this be so? The answer most frequently given by economists is that unemployment is associated with loss of output-if the unemployed had jobs, domestic output would be higher. Another aspect, often neglected in aggregate approaches to policy, is that some groups in the population suffer much more unemployment than others. To talk of the loss of national output as the main cost of unemployment tells only part of the story. For the individuals most exposed to the risk of becoming and remaining unemployed this is not an important consideration. Furthermore, the loss of income associated with unemployment is often accompanied by loss of skill and work habits, which can further damage an individual’s chances of finding new work.