Vulnerability, Unemployment and Poverty: A Class of Distribution and Sensitive Measures, Its Axiomatic Properties and Applications

Kaushik Basu and Patrick Nolen

Economics Discussion Papers from University of Essex, Department of Economics

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.

Date: 2006
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