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WELFARE MEASUREMENT, INVOLUNTARY UNEMPLOYMENT, AND HETEROGENEITY
Author(s) -
Aronsson Thomas
Publication year - 2010
Publication title -
review of income and wealth
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.024
H-Index - 57
eISSN - 1475-4991
pISSN - 0034-6586
DOI - 10.1111/j.1475-4991.2010.00402.x
Subject(s) - economics , unemployment , welfare , wage , measure (data warehouse) , labour economics , macroeconomics , market economy , database , computer science
This paper concerns welfare measurement in an economy with union wage setting, where the equilibrium is characterized by unemployment. Contrary to results derived in the first best, the current value Hamiltonian is not an exact welfare measure in an economy with unemployment. Instead, the welfare measure also depends on “employment effect,” which are caused by the discrepancy between supply and demand in the labor market. In addition, since unemployment gives rise to heterogeneity, distributional effects will also characterize the welfare measure.