For me, there are two categories where the costs of rising unemployment fall (ignoring any indirect costs through taxes and benefits):
- The costs of an unemployed person/resource (so their pain, and the fact that we have a market that isn’t clearing),
- 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.