Social Psychology, Unemployment and Macroeconomics

Abstract

A major concern for labor economists has been to understand how wages, employment and productivity respond to variations in predetermined factors such as tastes for leisure and endowments of human capital. The starting point for their analysis has tended to emphasize choice rather than the circumstances that dictate the range of perceived options. In contrast, social psychologists have tended to have a greater interest in understanding the factors that economists customarily treat as predetermined in affecting aggregate outcomes in labor markets. When they direct their attention to subjects within the sphere of interest of labor economists, they ask about the roles of motivation, personality, cognitive ability and early childhood socialization in the formation of attitudes toward work and task performance. They seek to comprehend the processes leading to action, as well as the consequences of such action.The tension between the two approaches is reflected in Simon's (1986) important distinction between "the substantive view of human rationality" common to neoclassical microeconomics and "the procedural view of human rationality" common to psychology. We are convinced that a synthetic approach that combines elements of substantive human rationality with the real-time, procedural view of human rationality can improve our understanding of such phenomena as aggregate unemployment and aggregate productivity.Consider, for instance, a macroeconomic shock that unexpectedly exposes individuals to unemployment.

The Impact of Spatial Externalities: Skills, Education and Plant Productivity

“…In addition, the employment rate is highly significant and influences productivity positively. The results thus support the theories by AKERLOF andYELLEN (1990) andDARITY andGOLDSMITH (1996) regarding the behaviour and psychology of employees. In addition, a higher employment rate reflects that the plants in the region are doing well, or that the labour market matching works well.…”

“…According to AKERLOF and YELLEN (1990), employees respond by lowering their effort, especially if the wage falls below the level considered to be fair. DARITY and GOLDSMITH (1996) argue that being unemployed has a negative effect on psychological well-being, which affects productivity if the unemployed person becomes employed. On the other hand, a higher employment rate might affect productivity negatively due to the entrance of lower-skilled workers.…”

Money or mental health: the cost of alleviating psychological distress with monetary compensation versus psychological therapy

“…In the UK the Fatal Accidents Act 1976 recommends a substantially lower payout of just £10,000. If such a financial compensatory argument were extended to unemployment, which is well known to have deep psychological effects beyond the simple loss of income (Darity and Goldsmith, 1996), the income equivalence of psychological distress alone would be in the region of £34,000-£59,000 per annum (Oswald and Powdthavee, 2008a).…”

Non-Pecuniary Value of Employment and Natural Resource Extinction

“…Also, see Kranton (2003)(2005) for an analysis of the effects of workers' identity on incentives to exert effort, wage rate variation, and firms' optimal management strategies. For a survey of the social psychological consequences of unemployment and implications for behavioral macroeconomic model and policy see Darity and Goldsmith (1996). a mistake, because it understates the full well-being costs, which according to the data, appear to be predominantly nonpecuniary."…”