Thursday, October 28, 2010


I'm supposed to tutor for a introductory macroeconomics class, but I haven't had time until today to look at what they're learning. I opened the first set of slides and saw this statement:

Unemployment is bad for the individual unemployed workers, because they can't make a living.
That seems obvious. But I think it misses the real problem with unemployment.

Unemployed workers can collect unemployment, at least in the short run. But that doesn't stop unemployed people from being unhappy. The reason unemployment is so bad is because of the psychological effects:

1a. Being laid off or fired hurt your self-esteem
1b. It makes you worry about being able to do jobs in the future
2. It cuts you off from your friends

These psychological effects are what cause so many unemployed people to become depressed, which has a negative impact on their families. That is the real toll of unemployment.

On the bright side, it's probably easier to teach people to cope with being laid off and to integrate people into social circle outside their workplace than it is to eliminate the search frictions (etc.) that cause unemployment.

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