Costly Unemployment

As Congress considers–and eventually extends–a temporary payroll tax cut and extended unemployment benefits past 2/12, it should note that if both lapse GDP in ’12 would be reduced by 1%, when GDP growth is only 2%. They might also note that when workers lose their jobs when unemployment is below 6% they lose 1.4 years worth of income, but lose 2.8 years of income when they lose their jobs when unemployment is over 8%.

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