Umeå Economic Studies,
Umeå University, Department of Economics

Abstract: This paper concerns social accounting in an economy with union wage setting, where the equilibrium is characterized by unemployment. By analogy to the literature on social accounting under environmental external effects, the current value Hamiltonian (or extended NNP in utility terms) is not an exact welfare measure in an economy with unemployment. The present value of future changes in employment also becomes part of the exact welfare measure. Part of the welfare contribution of the future changes in employment is due to an external effect associated with the employed individuals' choices of hours of work. I also show how this 'employment effect' is modified, if the unions are able to directly affect the hours of work per employee.

Keywords: Social Accounting; Unemployment; Welfare Measurement

JEL-codes: I31; J64

22 pages, September 19, 2002

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