The spectre of unemployment

For me, there are two categories where the costs of rising unemployment fall (ignoring any indirect costs through taxes and benefits):

  1. The costs of an unemployed person/resource (so their pain, and the fact that we have a market that isn’t clearing),
  2. The costs to those who become scared that they are going to become unemployed.

Often when we think of recessions we think about people who become unemployed – as it is hard for them. If you are an economist you probably also think about how much the under-utilisation of resources vexes you (I know I do).

However, the cost of fear, and the uncertainty that comes with it, can be just as devestating – just ask 1 in 5 New Zealander’s.

As we have mentioned before – the costs of a recession fall disproportionately on those that lose their jobs. However, the very human attribute of fear ensures that some of the psychological cost is indeed spread around.

Update:  Although this does mean that 4 out of 5 people aren’t scared of losing their jobs at present.  Are we that safe, or is their more fear to come.  I think that the economic situation could be much stronger than some economists are stating (stronger than the NZI 11% UR call, or ANZ’s 8%) AND we could still have more households becoming fearful.