Measuring the cost of the fear of unemployment: an information approach

Leslie, Derek and Blackaby, David (1999) Measuring the cost of the fear of unemployment: an information approach. Labour, 13 (2). pp. 481-507. ISSN 1121-7081

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Abstract

A method of measuring the insecurity costs of unemployment or what might be termed the fear of unemployment effect is proposed. The approach is from an individual perspective and builds on a cost measure first suggested by Lucas. The measure is designed to abstract away from any output losses that might be incurred in a recession. The latter is the traditional Keynesian way of measuring recession costs. The paper demonstrates the intuitively sensible properties of the measure and argues that to neglect the fear of unemployment effect as is done with standard Keynesian cost measures could seriously underestimate recession costs for some individual types. The paper concludes with a multiperiod simulation of the insecurity cost measure.