The Welfare Cost of Unemployment in Quebec: Harberger's Triangle Meets Okun's Gap

Bernard Fortin () and Andre Bernier

Canadian Journal of Economics, 1988, vol. 21, issue 1, 161-81

Abstract: Using duality theory under rationing, the authors derive a measure of the aggr egate welfare cost of cyclical unemployment, which takes into account the value of additional nonmarket activities promoted by unemploymen t. This measure is then applied to the Quebec economy, using benchmar k general equilibrium data for 1980. Comparisons are made between the results obtained from the author's welfare measure and from the redu ction in GNP, as measured by Okun gap. According to their simulations , the overestimating bias of the cost of cyclical unemployment in Que bec, as measured by Okun gap, varies between 3 and 20 percent, depend ing on the assumptions used. The bias is more important, however, whe n a permanent increase in the unemployment rate is simulated.

Date: 1988
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