Social Psychology, Unemployment and Macroeconomics

William Darity and Arthur H. Goldsmith

Journal of Economic Perspectives, 1996, vol. 10, issue 1, 121-140

Abstract: In a conventional macroeconomic model, following a policy change, as nominal wages adjust the economy returns to its original real levels of employment, output, and unemployment. This description of events ignores the social psychological consequences of exposure to unemployment. On theoretical grounds, unemployment is expected to damage psychological health, which in turn harms personal productivity. Empirical work supports both of these propositions. This paper presents a 'behavioral' macroeconomic model that accounts for elements of simultaneity between employment outcomes and psychological well-being. Implications of this model for the 'natural' rate hypothesis, the concept of full employment, and unemployment hysteresis are explored.

JEL-codes: E24 (search for similar items in EconPapers)
Date: 1996
Note: DOI: 10.1257/jep.10.1.121
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Citations: View citations in EconPapers (108)

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