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Cost of policy choices: A microsimulation analysis of the impact on family welfare of unemployment and price changes

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  • Hotchkiss, Julie L.
  • Moore, Robert E.
  • Rios-Avila, Fernando
Abstract
This paper calculates the welfare cost to families of an unemployment shock. Using U.S. data, we find an average annualized expected dollar equivalent welfare loss of $1,156 when the unemployment rate rises by one-percentage point. Relative to single families, the welfare loss is greater for married families and increases with education. We also estimate that a loss in purchasing power of 1.8% generates the same amount of welfare loss as a one percentage point rise in the unemployment rate. Additionally, the magnitude of the shock to purchasing power that a family is willing to endure to avoid a one percentage point increases in the aggregate unemployment rate rises with income. The results in this paper informs policy makers about the distributional implications of decisions likely to affect labor markets.

Suggested Citation

  • Hotchkiss, Julie L. & Moore, Robert E. & Rios-Avila, Fernando, 2020. "Cost of policy choices: A microsimulation analysis of the impact on family welfare of unemployment and price changes," Journal of Macroeconomics, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:jmacro:v:63:y:2020:i:c:s0164070419300515
    DOI: 10.1016/j.jmacro.2019.103167
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    More about this item

    Keywords

    Family welfare; Joint labor supply; Microsimulation; Dual mandate; Monetary policy;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • D19 - Microeconomics - - Household Behavior - - - Other

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