Hidden Unemployment

periods of unemployment, but the reason for the decreasing earnings prospects is not clear. In
domains where we might expect to see strong evidence, such as mental health outcomes, the
evidence is murky at best. When there are patterns of declining well-being as unemployment extends
longer, the extent to which declining well-being is due to increasing loss of lifetime income alone or
to time out of work is not clear.
The need to distinguish among competing explanations for the observed patterns is pressing,
because different policy responses would be called for depending on which of the potential
explanations is the dominant one. Further research should identify more clearly whether selection,
declining reservation wages, human capital depreciation, or some form of employer discrimination
seems to be the dominant explanation for reemployment wage declining with unemployment
duration. We also need to explore whether other long-run negative impacts of job loss and
unemployment duration are due to those same factors, or to loss of income or social position.
Consequences Of Long-Term Unemployment 13