Social Psychology, Unemployment and Macroeconomics

Citation

Darity, William A., Jr. & Goldsmith, Arthur H. (1996). Social Psychology, Unemployment and Macroeconomics. Journal of Economic Perspectives, 10(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.

URL

http://dx.doi.org/10.1257/jep.10.1.121

Reference Type

Journal Article

Year Published

1996

Journal Title

Journal of Economic Perspectives

Author(s)

Darity, William A., Jr.
Goldsmith, Arthur H.