Julie L. Hotchkiss, Robert E. Moore, and Fernando Rios-Avila

Working Paper 2017-7a
(September; revised July 2019)

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This paper calculates the cost of an unemployment shock in terms of family welfare. We find that, overall, families face an average annualized expected dollar equivalent welfare loss of $1,156 when the unemployment rate rises by 1 percentage point. The average welfare loss for married families is greater than for single families and increases with education. We then estimate that a 1.8 percent shock to purchasing power would generate the same amount of overall welfare loss as a one-percentage-point rise in the unemployment rate.

JEL classification: I30, E52, J22, D19

Key words: family welfare, joint labor supply, microsimulation dual mandate, monetary policy

Research assistance from Augustine Denteh is much appreciated, and the authors thank Julie Cullen and Raj Chetty for making programs used to estimate unemployment insurance benefits available. They also thank James Alm, Kelly Chen, Andrew Friedson, Mei Dong, Tim Dunne, Kelsey O'Connor, Andrew Oswald, John Robertson, Ling Sun, and Randall Wright for helpful comments and suggestions. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Julie L. Hotchkiss, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8198, Julie.L.Hotchkiss@atl.frb.org; Robert E. Moore, Office of the Dean, Department of Economics, Andrew Young School of Policy Studies, Georgia State University, P.O. Box 3992, Atlanta, GA 30302-3992, rmoore@gsu.edu; or Fernando Rios-Avila, Levy Economics Institute of Bard College, Blithewood, Annandale-on-Hudson, NY 12504-5000, friosavi@levy.org.

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