Welfare losses due to low employment rates: an exploratory analysis for The Netherlands

Abstract

This article aims at measuring the individual and national welfare losses due to low employment rates. The calculations are made from a microeconomic point of view and based on assumptions of the human capital theory. Welfare losses are measured as the hypothetical loss of production resulting from one additional year of interruption or postponement of the working career. Depreciation of human capital due to non-use in the interruption period and foregone experience are taken into account. The welfare losses are estimated for individual cases with specific characteristics with respect to age, educational level and length of interruption spell and multiplication factors are used to calculate the national welfare losses.