Measuring the severity of unemployment

Abstract

A social-welfare (illfare) function framework is applied to compare two demographic groups as to the severity of their unemployment experience. This is based on the assumption that for each individual the disutility of unemployment is an increasing and convex function of spell length. The very concept of spell length and its distribution, however, is not unambiguous. In contrast to previous literature which focuses exclusively on the “interrupted spell length in a stock of unemployed”, we stress the usefulness of the concept of “complete spell length in a cohort of unemployed”. We establish an equivalence relationship between second-degree dominance in the cohort and first-degree dominance in the stock. For specific illfare functions the disutilityU(x) when applied to the cohort and the disutilityU′(x) when applied to the stock will produce the same value of aggregate welfare (illfare).