How do unemployed people spend their time? How does unemployment affect time use in the entire economy? What is the lost output from unemployment, and what is the utility loss?
The unemployed use the time freed up from work for pay almost entirely in leisure and personal maintenance; they do no more household work than employed people. Similarly, in areas where unemployment is perennially high, there is less work for pay, more leisure, but no more household production.
But when unemployment suddenly rises, as in a recession, people shift from work for pay to household production; people don’t take more leisure time than before.
So if we would measure output to include production at home, we would infer that a recession doesn’t reduce total output by as much as we thought; and perhaps the utility burden of a short recession is not as severe as one might imagine.
January 24, 2009
A short, interesting Freakonomics blog post over at The New York Times: what do people do when they're unemployed? Are they lazy with an excess amount of free time on their hands? Or do they try to be busy and find ways to raise money while working at home?