When the unemployment rate goes up, the economy is in effect throwing away the goods and services that the unemployed workers could have produced, During recessions, it is as if vast quantities of automobiles, housing, clothing, and other commodities were simply dumped into the ocean.
How much waste results from high unemployment? What is the’ opportunity cost of recessions? Table 31-2 provides a calculation of how far output fell short of potential GDP during the major periods of high unemployment over the last half-century.
The largest economic loss occurred during the Great Depression, but the oil and inflation crises of the 1970s and 1980s also generated more than a trillion dollars of lost output. The last decade has been one of unprecedented stability in the United States, with very small business-cycle losses, The economic losses during periods of high unemployment are the greatest documented wastes in a modern economy, The); are many times larger than the estimated inefficiencies from microeconomic waste due to monopoly or than the waste induced by tariffs and quotas,