Unemployment: Macroeconomic Performance and the Labour Market
Abstract
This book is concerned with why unemployment is so high and why it fluctuates so wildly. It shows how unemployment affects inflation, and discusses whether full employment can ever be combined with price stability. It asks why some groups have higher unemployment rates than others. The book thus surveys in a clear, textbook fashion the main aspects of the unemployment problem. It integrates macroeconomics with a detailed micro-analysis of the labour market. it uses the authors' model to explain the puzzling post-war history of OECD unemployment and shows how unemployment and inflation are affected by systems of wage bargaining and unemployment insurance. For each issue it develops new relevant theory, followed by extensive empirical analysis. The authors are established experts in this field, and this book gives their definitive treatment. It is based largely on new research, but also incorporates the best of existing knowledge. The long `overview' chapter is accessible to any non-specialist with an elementary knowledge of economics. The rest of the book provides key elements for courses in macroeconomics and labour economics at advanced undergraduate and graduate levels, and will serve as a major source of reference for both scholars and students. The basic aim of the book, however, is to provide the basis for better policy. As the book shows, by learning from theory and experience, we can avoid the waste and misery of high unemployment.
... Workers have greater bargaining power as the unemployment rate falls and vice versa, with this effect determined by ε, the elasticity of wages relative to the unemployment rate. As in all UKENVI applications, the central value of ε is set at 0.113 based on the work of Layard et al. (1991). This is consistent with more recent analyses by Blanchflower and Oswald (2005), who find a persistent To more fully understand how the influence of real wage bargaining on long-run equilibrium outcomes may be reduced alternative scenarios regarding the labour supply are also considered. ...
... This is consistent with more recent analyses by Blanchflower and Oswald (2005), who find a persistent To more fully understand how the influence of real wage bargaining on long-run equilibrium outcomes may be reduced alternative scenarios regarding the labour supply are also considered. The first involves assuming a flow migration process, following the approach developed by Layard et al. (1991) and Treyz et al. (1993) that is more generally applied in sub-national or regional contexts, taking the form: ...
... Here, migration in each year is negatively related to the gap between the log of national (here UK) and international (ROW) unemployment rates and positively to the log of real wages. Two elasticities measure the impact of the unemployment (v u ) and real wages (v w ), respectively set at -the 0.08 and 0.06 values estimated by Layard et al. (1991). Basically, this enables an updating of the UK labour J o u r n a l P r e -p r o o f supply in response to changing labour demand where, over time, any increase in the real wage rate will be negated by the response of an increasing labour supply. ...
... Apart from its impact on job matching effectiveness, ALMPs have the potential to change the level of competitiveness for open positions by raising participant competition (Layard et al., 1991;Nickell and Layard, 1999). If ALMPs assist in maintaining or improving the skills of the unemployed, the competition for jobs is likewise boosted. ...
... A number of studies such as, Scarpetta (1996); Blanchard and Wolfers (2000), and Murtin and de Serres (2014), have been done on the macroeconomic consequences of labor market institutions and reforms, of which ALMPs are one part. Studies on the structural unemployment rate indicate that the impact of activation on ALMPs had a detrimental impact on long-term unemployment (Layard et al., 1991). Calmfors et al. (2001) report that the evidence on the effectiveness of Swedish ALMP is rather disappointing and labor market retraining for example has no or negative employment effects. ...
... According to this paradigm -let us call it "the competition state paradigm" because it aims at securing national economic competitiveness -in order to promote employment and economic growth, governments should adhere to five imperatives (see also : Layard et al., 1991): -Income taxes should be as low as possible; -Social security benefit levels should be as low as possible and coverage should be minimal; -Wage setting should occur at the individual level instead of the collective level; -Employment protection legislation should be as relaxed as possible; -Governments should implement administrative measures to increase the labour supply. There were two key concepts crystallising the logic: structural unemployment and inflation targeting. ...
... A common practice among economists working on distribution has been to take the aggregate compensation of employees, as shown in the national accounts, and divide it by some measure of national income, to show the share of labour in the economy's total marketed output. This is then interpreted as either the competitive return to labour in an aggregate (or aggregated 2 ) production function (Kaldor, 1957;Pullen, 2010;Solow, 1956) or as the outcome of wage-bargaining in imperfectly-competitive labour markets (Blanchflower & Oswald, 1994Card, 1995;De Loecker et al., 2020;Layard & Nickell, 1985;Layard, Nickell, & Jackman, 2005;Manning, 2003;Mishel & Bivens, 2021;Stansbury & Summers, 2020;Taylor and Ömer 2020). ...
The share of wages and salaries in New Zealand’s Net Domestic Income fell steadily from 1981 to 2002, with no apparent break in trend coinciding the Employment Contracts Act 1991 (the ECA). However, adjusting the aggregate wage-share measure to control for changes in the size of the employee workforce relative to the total adult population yields a measure that we call [following Pen, J. (1971) Income distribution, translated by T.S. Preston. Allen Lane, the Penguin Press] the Wage Ratio – compensation per employee relative to national income per adult. That ratio, supported by a statistical analysis of its components, highlights the early 1990s as a decisive turning point and shows how the conventionally-measured labour share may fail to identify crucial changes in the balance of power in the labour market.
... Several channels may mitigate this underinvestment effect. First, when employee organizations and firms bargain over wages and employment levels, as in efficient bargaining models, the unions' preferences for employment may limit their rent-seeking behavior (Oswald and Turnbull 1985;Layard et al. 1991;Booth 1995). Second, firms may credibly commit to first-period wages that completely outweigh any secondperiod hold-up (Crawford 1988). ...
This work examines how workplace employee organizations causally affect the adoption of advanced digital technologies in Italy. It does so by using information from the survey “Rilevazione Imprese e Lavoro” conducted by the National Institute for Public Policy Analysis on a nationally representative sample of Italian firms in the non-agricultural private sector in 2018. It shows that workplace employee organizations increase the probability of advanced digitalization by around 15 percentage points per year, and the number of different technologies adopted by 0.41. The empirical strategy follows an IV approach that eliminates simultaneity bias and builds upon a lagged internal instrument combined with a NUTS-3 measure of altruism—namely, per capita blood donations. Results survive when cybersecurity is excluded from the analysis and prove robust when the internal instrument is left alone, combined with an index of tolerance or with propensity score matching.
... The models are based on the conventional aggregate supply / aggregate demand (AS-AD) framework, where the long-run relationships have mainly been chosen on the basis of theoretical considerations. The wage-price system is based on a bargaining model between employers and trade unions (Layard, Nickell, Jackman 1991). In this labour market model, prices are set as mark-up over marginal costs. ...
In this paper, the forecasting performance of a structural multi-country model for Slovenia, Serbia, Croatia and Bosnia and Herzegovina is compared to the forecasting ability of ARMA and VAR models. It turns out that in many cases the time series approaches deliver more accurate predictions of economic growth, inflation and the unemployment rate than the structural model which is based both on economic theory and on time series for the included countries. This shows that it is not so easy to beat time series models in forecasting. However, the usefulness of structural models should not be evaluated on the basis of their forecasting performance alone, since these models can in addition be used to investigate the macroeconomic effects of policy measures or of exogenous shocks.
... Working is so critical to our wellbeing that even a bad job is better than unemployment (di Tella et al., 2001;Layard, 2006;Layard et al., 2005). According to Grün et al. (2010), "Even low-quality jobs are preferable to unemployment" (p. ...
Gig work is one of the fastest‐growing trends in the labor market, one that accelerated during the COVID‐19 pandemic. It is therefore important to understand its impact on individual happiness. A simple theoretical framework is constructed to analyze aspects of gig work and their effect on happiness. In particular, we model happiness as being dependent on various characteristics of work, such as income, work flexibility, job stability and job security, employee benefits, and non‐pecuniary benefits. We demonstrate that merging salaried work and gig work can be an effective way to increase happiness. The proposed framework identifies the characteristics of an individual who will achieve greater happiness in gig work. These insights may help to understand the effect of recent changes in the labor market on workers' happiness.
... Instead of contributing to job and wage competition, such unemployed individuals actually form a noncompetitive segment of the workforce. Apart from inducing additional public expenditures on unemployment benefits, welfare and healthcare, this leads to higher equilibrium unemployment than is otherwise sustainable, as well as to losses in potential output (Blanchard and Wolfers 2000;Layard, Nickell, and Jackman 2005). ...
This paper examines the micro-determinants of unemployment durations and exits in Czechia, Poland and Austria. Our hazard estimates utilize EU-SILC data and identify national specificities in which individual, household and regional characteristics affect labor market outcomes. This concerns particularly the effects of education on jobfinding probability, which are nearly absent in Poland, as opposed to Austria and, even more so, Czechia. However, the key results are common across countries: Unemployed women are less employable than unemployed men, even after controlling for explanatory covariates and the disproportionally high female selection to inactivity. The
analogous findings apply to the elderly and those in poor health.
... The ascendency of straightforwardly neoliberal policy ideas in this field was, however, relatively short-lived. In both academic and policy circles there was soon acknowledgement of a more complex reality in which the alleged relationship between labour market 'rigidities' and economic performance was at best weak, if not outright missing (Nickell, 1997;Layard et al., 2005). Academic research challenged the inherent superiority of a model of capitalism -broadly represented by the Anglo-Saxon countries -characterised by highly deregulated labour markets and residual social policies (Hall and Soskice, 2001). ...
... Influenced by trade union rights, wages consistently outpaced labor productivity from 1989 to 1993. As labor market productivity rose, unemployment rates varied widely across countries (Layard et al., 1991). ...
The complex interplay between taxation and unemployment remains a pivotal subject in economic research, with Turkey emerging as an especially compelling case study within this framework. This comprehensive study meticulously investigates the consequences of employment taxes on Turkey's labor market dynamics, juxtaposing these findings against broader European contexts. Leveraging a combination of historical data analysis, reviews of contemporary fiscal policy shifts, and insights from established academic research, this study offers a holistic understanding of the real-world implications of tax wedges on employment outcomes in Turkey. Central to the findings is a pronounced negative correlation between escalating tax wedges and employment rates. This dynamic particularly impacts low-skilled workers, with demographic groups such as the youth, the elderly, and women experiencing heightened vulnerabilities. Despite a series of well-intentioned fiscal reforms, Turkey's unemployment figures have not seen the desired decline. This study asserts the pressing need to broaden the country's tax base, alleviate financial strains on the labor force, and critically re-evaluate the progressive personal income tax system. Key recommendations encompass the restructuring of tax brackets, the potential reintroduction of the Minimum Living Allowance, and further policy measures ensuring a fairer fiscal landscape. In conclusion, while Turkey faces significant challenges in harmonizing its taxation and employment strategies, this research presents a roadmap that, if adopted, promises both robust economic progression and enhanced societal well-being.
... Of note here is the fundamental work byLayard, Nickell, and Jackman (1991), who concluded that long-term unemployment has a major effect on NAIRU (Non-Accelerating Inflation Rate of Unemployment) levels. ...
Background: This article presents an attempt to capture trends in long-term unemployment, determine its structure and intensity regarding labour force groups, and identify factors that contributed to long-term unemployment in Poland between 2015 and 2019. Research purpose: An economic, multifaceted analysis of long-term unemployment in Poland in the years of economic upturn from 2015 to 2019. Methods: An empirical analysis using quarterly aggregate and individual data on unemployment sourced from LFS conducted from 2015 to 2019. Non-parametric and parametric methods (a logit model) were also used. Conclusions: The highest probability of long-term unemployment compared with the base categories characterised people aged 45 or older, people with junior secondary, elementary or incomplete elementary education, the unemployed seeking jobs through labour offices, urban residents, and the residents of voivodeships other than the Mazowieckie voivodeship (excluding Lubelskie). The lowest risk of long-term unemployment compared with the base categories occurred among people aged up to 24 years, higher education graduates, and people with postsecondary and secondary education, married people, active-job seekers, and the residents of the Lubelskie voivodeship.
... Labor is one of the essential human activities and lack of employment is one of the most serious economic and social problems, resulting in loss of income, increasing social inequality, and human capital erosion (Layard et al., 2005). Labor demand has been ascribed to different meanings. ...
Purpose of the study: The objective of the study was to examine the mediating effect of
employee remuneration on the relationship between leadership practices and turnover
intention of technical staff in the Kenyan schedule operating passenger airlines.
Statement of problem: The global airline industry is facing various challenges. One of the
major challenges is related to the turnover of highly skilled technical staff. The turnover
intention of staff is viewed as a direct predictor of actual intention. The turnover intention of
employees is heavily affected by leadership practices and remuneration policies.
Research Methodology: The data for the study was collected from all the 12 Kenyan
schedule operating passenger airlines. The research design used by the study was descriptive
cross-sectional survey design. A total of 335 sample respondents were selected using
proportionate stratified sampling technique from the population of 2058 technical staff.
Research Findings: The results from the data analysis indicated that there is no significant
mediating effect of employee remuneration on the relationship between leadership practices
and turnover intention as there is no significant influence of employee remuneration on
turnover intention when controlling for leadership practices (β =0.02 & pValue=0.224>0.05).
... The current phenomenon also shows that youth unemployment is a serious problem (Liotti, 2022). Several studies have examined youth unemployment in Europe, with the neoclassical labor market hypothesis using market theory whereby higher unemployment is primarily due to stricter labor market regulations, which are a barrier to achieving full employment (Layard et al., 1991;Lazear, 1990). ...
Unemployment in Indonesia is a problem with an urgency to provide a solution to improve social life. As unemployment increases, the poverty rate also increases. The purpose of this study is to identify and explain and overcome poverty and unemployment in Indonesian society. Efforts to reduce the unemployment rate and concomitantly reduce the poverty rate are equally important. The results of the study recommend that policy making in handling unemployment in Indonesia focuses more on microeconomic factors. This research is expected to contribute to the analysis of the unemployment rate in Indonesia in the study of business and microeconomics.
... This finding of varying levels of labor force attachment in a recession mirrors earlier examinations of pro-cyclical racial differences in unemployment (Freeman (1973), Couch and Fairlie (2010)). They also relate to studies of differential effects of business cycles on more disadvantaged workers (Hoynes, Miller and Schaller (2012); Aaronson et al. (2019); Schwandt and von Wachter (2019)) and studies focusing on hysteresis after recessions (Blanchard and Summers (1986) ;Layard, Nickell and Jackman (2005); Yagan (2019)). ...
While the descriptive impacts of the pandemic on women have been well documented in the aggregate, we know much less about the impacts of the pandemic on different groups of women. After controlling for detailed job and demographic characteristics, including occupation and industry, we find that the pandemic led to significant excess labor force exits among women living with children under age six relative to women without children. We also find evidence of larger increases in exits among lower-earning women. The presence of children predicted larger increases in exits during the pandemic among Latina and Black women relative to White women. Overall, we find evidence that pandemic induced disruptions to childcare, including informal care from family and friends. Our results suggest that the unique effect of childcare disruptions during the pandemic exacerbated pre-existing racial and income inequalities among women.
... The quantity to be maximized corresponds to the product of the gains that each party manages to obtain in the event of agreement, weighted by the weight of each agent in the negotiation. This model has had a number of applications, notably in the field of labor economics (Layard, Nickell and Jackman, 1991). ...
p> The aim of this article is to model a negotiation between shareholders in high-technology-risk industries and local residents on the safety investments to be implemented. The methodology used is a Nash bargaining model, with a DE curve representing shareholders' dividend demands and an NS curve representing the safety demands of local residents' associations. The model is used to determine the level of safety investment required. One of the main results is that the estimation of a higher accident risk is accompanied by both a higher safety investment and a higher dividend payout. The most obvious implication of this result is that it is undoubtedly necessary to give greater weight to local residents in investment decision-making, in order to improve the well-being of all stakeholders. </p
... In more recent developments, much of the so-called new Keynesian literature on aggregate demand is based on representing demand as depending on the real value of the stock of money, and hence real demand varies as the price level changes (bringing about a change in the real value of the money stock). For example, in their book on unemployment, Layard, Nickell and Jackman (1991) portray aggregate demand as depending on, inter alia, the real stock of money. In a similar vein many models in the new Keynesian approach model aggregate demand in terms of the real stock of money. ...
... It illustrates the relationship between unemployment and inflation and explores the possibility of achieving both price stability and full employment. It queries why some demographic groupings experience higher unemployment rates than others [8]. ...
To some extent, the unemployment rate can measure the economic situation of a country, generally speaking, the economic development is good during the period of low unemployment, and there are relatively few social contradictions and problems; Contrarily, the economy is weak, social conflicts are obvious, and the unemployment rate is high. Therefore, studying the unemployment rate can be used as one of the references for studying the good or bad economy of a country, and at the same time, predicting the future unemployment rate can also allow the government department to understand the future situation to prevent possible problems. The Covid-19 epidemic in 2020 had a great impact on the job market, this paper uses time series data of the US business rate, and uses the ETS model and the ARIMA model to predict and analyze the unemployment rate. in addition, The same methodology has been applied to states with the highest and lowest unemployment rates in the United States to predict unemployment rates and analyze the specific impact of the pandemic on employment.
... An important feature of the model is that it incorporates wage rigidities via a wagesetting curve (Layard et al. 2005), which states that wages tend to decline with an increasing unemployment rate, albeit imperfectly. Consider an economy where wages are fi xed by collective agreements between trade unions and employer federations. ...
... 11 In the UK and continental Europe, the process appears to have been somewhat different. The bargaining power of trade unions meant that the NAIRU (or non-accelerating inflation rate of unemployment) was much greater than the natural rate described by Friedman at which all labour would be fully employed (Rowthorn, 1977;Layard et al., 1991). European policy-makers, not realizing this, seem to have aimed for something like the natural rate while promising low inflation. ...
This paper first describes the Bretton Woods system: its origin, what it was meant to achieve, and why it collapsed. We then describe the emergence of the global non-system in which inflation targeting has replaced full-employment Keynesianism and floating exchange rates have replaced the Bretton Woods set-up of fixed but adjustable exchange rates. We describe how the Bretton Woods system set about achieving the three objectives laid down for a well-functioning international economic system by John Maynard Keynes: full employment without inflation, sustainable current account balances between countries, and a sustainable flow of international financial capital—on the understanding that an open trading regime is also fostered. Because the global non-system is now very different from the Bretton Woods system, Keynes’s objectives now need to be achieved in a very different manner. Looking forward, this non-system faces a number of longer-term challenges. Important adjustment issues will arise in relation to the global demographic transition; the potential long-term slowdown in productivity growth; and the rise in investment in renewable sources of energy which will be necessary to help ensure that the world is able to move towards zero emissions of carbon by 2050. We also discuss important policy issues in relation to the flows of international capital to emerging market economies, and the likely need for a sovereign debt reconstruction mechanism. We then go on to consider two significant structural changes to the world—the emergence of the European Monetary Union and the rise of China. A final section of the paper considers the importance of leadership in this global non-system.
... Meade was well aware of this and discussed the reform of pay bargaining inMeade (1982). In the UK the new view had already been elaborated byRowthorn (1977); it was taken up and developed byLayard et al. (1991).9 See, for example,Meyer (2000).Downloaded from https://academic.oup.com/oxrep/article/39/2/195/7113966 by guest on 13 April 2023 ...
In this paper we analyse why an understanding of the global ‘non-system’, in which we now live, took so long to arrive after the Bretton Woods system collapsed in 1971. We first describe how knowledge of how an inflation-targeting regime would operate—what we call ‘Taylor-rule macroeconomics’—was only gradually created during the 1970s, 1980s, and 1990s. We then describe how, subsequent to this, an awareness emerged, also gradually, of how the international non-system might work, depending, as it does, on Taylor-rule macroeconomics being already in place. We then discuss the Great Moderation, making clear that a well-functioning global non-system would require not just inflation targeting and floating exchange rates in each country, but also adequate fiscal discipline, and a satisfactory form of financial regulation. We describe how a well-functioning version of this global non-system would actually fit together. We then discuss how this non-system has responded to two enormous challenges of the last 15 years, namely the Global Financial Crisis and the Covid pandemic. This discussion of what has happened in the recent past provides the background to a discussion, in the companion paper by Subacchi and Vines in this issue of the Oxford Review of Economic Policy, of the challenges that the global non-system will face in the future.
... Following the influential work of Layard et al. (1991), the importance of labour market institutions for explaining the evolution of unemployment has been greatly emphasized in the literature. In particular, the interaction of labour market institutions and adverse economic shocks would be crucial in order to account for the heterogeneity of unemployment experiences across European countries (Blanchard and Wolfers, 2000). ...
We revisit the role of government size and labour market institutions on macroeconomic volatility, for the case of the eurozone since the adoption of the euro, which can provide a more homogeneous setting to test for macroeconomic volatility. The behaviour of the volatility of inflation looked rather different from that of GDP. Neither government size nor labour market institutions seemed to affect the volatility of GDP, except when demographic factors were included into the estimated equation; whereas lower volatility of inflation was related to a lower share of non-prime age workers and lower wage volatility.
... The theory of signalling is based on the assumption that the past labour market status represents an important signal of productivity for potential employers (McCormick, 1990). As one of the most quoted arguments in the literature readswhile unemployment is a bad signal, being in a low quality job may well be a worse one (Layard et al., 2005). This applies, in particular, to high-qualified workers, as it indicates that there is a gap between their real productivity and the productivity suggested by their level of education/qualification. 2 Thus, according to the theory of signalling, high-skilled workers tend to avoid low-paid jobs, assuming that low-paid jobs do not necessarily work as a springboard to better-paid employment. ...
The article provides analyses of the mobility and resilience to mobility among low-wage earners in four Central European (CE) countries. It examines transitions into higher-paid jobs, unemployment/inactivity, and the stability of low-wage status. In addition to standard transition matrices and summary mobility indices, it employs multinomial logit models with the aim of identifying individual determinants of low-wage earners’ prospects. The findings show that the CE countries do not represent a homogeneous group in terms of presence of low wages when the period of 2010–2016 is considered. In regard to future prospects, low-wage employees in the countries with higher incidence of low pay are more likely to reproduce their status, as compared with countries with lower incidence. Upward mobility is more likely among younger, high-educated employees and among those who work in “better” occupations.
... Starting from the 1980s, changes in the world economy and increasing international competition have had negative consequences for employment performance in many European countries (Lazear 1990;Layard, Nickell, and Jackman 1991;Pissarides and McMaster 1990;OECD 1994;Lazear 1990;Zemanek 2010;Bernal-Verdugo, Furceri, and Guillaume 2013). According to Neoclassical and New Keynesian theories, the difficulties of many European countries in achieving good employment performance compared to the United States, for examplewas due to the strong rigidity of the labour market, which, by guaranteeing excessive protection to workers leads to an unemployment level higher than the 'natural' one (Nickell 1998;Nickell, Nunziata, and Ochel 2005;Blanchard and Wolfers 2000;Blanchard and Summers 1986;Blanchard, Bean, and Münchau 2006). ...
Since the beginning of the 1980s, reforms of the labour market have been at the centre of political and economic debate in the European Union. While these reforms were implemented mainly with the aim of improving employment performance by removing structural issues, they may also have had non-secondary and non-negligible effects on the share of national income received by workers. The aim of this paper is to study the effects of the changes in the labour market regulation index (LMRI) on the wage share in twelve Eurozone countries between 2000 and 2019. The empirical results — obtained from the estimation of an error correction model (ECM) — show that: (i) an inverse relation exists between LMRI as a whole and adjusted wage share in the short run only; (ii) the reduction of the adjusted wage share depends mainly on two specific measures of flexibility: a more decentralized level of bargaining (the effects of which are significant in both long- and short-run periods) and a relaxation of the hiring and firing regulations (the effects of which are significant only in the short run); (iii) the economic growth and unemployment rate also contribute to the decline of the adjusted wage share.
... However, we highlight some key features below. The model is essentially a multisectoral, multiregional, dynamic variant of a Layard et al. (2005)) model in which there is imperfect competition in labour markets and there are two endogenous regions-Scotland and RUK-and one exogenous region, ROW. There are 18 production sectors and 3 domestic transactor groups in each region: households, firms and government. ...
Trade issues lie at the heart of the two biggest constitutional challenges the UK has faced in decades: Brexit and Scottish independence. Brexit has demonstrated the economic importance of borders and led to renewed calls for Scottish independence. While there are a range of possible trading arrangements an independent Scotland could pursue, all of them involve economically significant change. In this paper, we describe Scottish trade patterns and review the range of options that a newly independent Scotland might have for its trading arrangements. We then model the relative economic importance of these different potential trading arrangements.
... Le sujet est vaste et dépasse notre champ d'analyse. Pour une revue complète sur ce thème, voir Layard, Nickell et Jackman[43] ou Blanchflower et Oswald[12]. ...
Cette thèse étudie les effets de mobilité des capitaux sur les politiques publiques dans une situation de sous-emploi. Nous traitons cette question selon trois axes. D'abord, nous introduisons le chômage dans le cadre d'analyse usuel de la concurrence fiscale afin d'étudier l'effet de mobilité du capital sur l'offre de biens publics pour établir que le résultat classique de sous-provision de biens publics est remis en question dès qu'on lève l'hypothèse de plein emploi. Nous menons ensuite une étude de la politique du salaire minimum sous la contrainte de mobilité des capitaux lorsque son rôle est de corriger la répartition des revenus. Nous montrons que la mobilité du capital conduit à la fixation d'un salaire minimum trop faible lorsque les Gouvernements ne sont pas capables de coopération. Enfin, nous analysons dans un troisième axe, l'effet de la mobilité des capitaux sur les politiques publiques en terme d'efficacité lorsque le marché du travail est soumis à des friction. A cet effet, nous utilisons un modèle d'appariement où le stock du capital est exogène. Deux résultats principaux émergent. Le premier résultat montre que le salaire minimum est un moyen d'améliorer l'efficacité du marché du travail en économie fermée; le second est que la mobilité du capital n'affecte pas l'efficacité de la politique du salaire minimum (ainsi conçue) en économie ouverte.
In recent years, the global economy has been hit by a sequence of severe shocks that affected the two largest economies, the USA and the Euro Area, severely. Uncertainties about the future abound. While the challenges are similar for both economies and the policy tools resemble each other, they apply to different economic landscapes. What can they learn from each other? This paper looks at the basic structural facts, the nature of uncertainty shocks, and the efficiency of policy tools in the two economies. The key to understanding recent developments is uncertainty. This paper argues that the channel through which uncertainty influences inflation, wage cost, and unemployment is the markup firms charge to cover their cost of capital. While the measurements of uncertainty are uncertain, adding a proxy for uncertainty can improve the estimates of the basic New Keynesian model. The Federal Reserve Bank has been more successful because it operates in a more integrated capital market. In the Euro Area, uncertainty is higher than in the US and this could make disinflation in Europe more painful in terms of unemployment.
This chapter outlines the theoretical assumptions that framed the economic response in the Eurozone during the global financial crisis in 2008. Based on the Comparative Political Economy principles, this chapter provides a critical review of the neoclassical economic perspective and the Keynesian approach and their assumptions about the crisis in the Eurozone. It provides a revisiting of the Varieties of Capitalism’s institutional framework and the new demand-side Growth Model approaches in explaining the gradual structural decline in Southern Europe and the macroeconomic imbalances in the Eurozone. It reconciles the Varieties of Capitalism and Growth Model perspectives to explain the emergence of different and diverging models of capitalism in Europe, opening up new avenues in the current Comparative Political Economy research. It introduces the concept of ‘intermediate’ economies to show the complex structural transformation in Greece and Portugal and their current role in the global economy.
Este trabajo presenta la primera parte de mi tesis de maestría en Ciencias Sociales del Trabajo, publicada en el Centro Interdisciplinario para el Estudio de las Políticas Públicas.
Resumen
De la mano del neoliberalismo, se configura a partir de los años ‘70 una nueva forma de concebir la gestión social de la desocupación, que se caracteriza por una matriz socioasistencial que incluye distintos programas sociales, de empleo y de transferencia de ingresos que se agrupan bajo el concepto de paradigma de activación o workfare. Existe consenso en plantear que este paradigma consiste en dos elementos centrales: i. un mayor vínculo entre las políticas sociales y las políticas del empleo en vistas de (re)instaurar una concepción de las política asistenciales basadas en le ética del trabajo y en la centralidad del empleo como
mecanismo básico de inclusión social; ii. en imponer a los perceptores de la política asistencial restricciones, limitaciones, contrapartidas y condiciones, para el ingreso y la permanencia en los dispositivos de asistencia. En este contexto, el objetivo central de este documento de trabajo es poner en discusión las características y los soportes teóricos sobre los que este paradigma se sustenta a partir de algunas de las críticas que se han realizado desde distintas corrientes de pensamiento heterodoxo, tales como: i) el acento en la responsabilización individual, el énfasis en la teoría del capital humano y en el concepto de empleabilidad , ii) el énfasis en la contractualización y en la exigencia de contraprestaciones iii), el énfasis en la
teoría de la elección racional y en las trampas de la pobreza, la inactividad o el desempleo.
Unemployment is a factor that affects the economic security of individuals and society as a whole. The poverty risk rate is one of the main factors related to social inequality and social protection. Unemployment and long-term unemployment can increase the poverty risk rate because individuals have limited or insufficient income and employment opportunities. The relationship between unemployment, long-term unemployment and poverty rates is currently the subject of various research topics. This paper focuses on these interrelationships in Slovakia. The aim is to analyse the data and explore the correlations between these variables. The thesis mainly used statistical data provided by the Slovak Statistical Office and other relevant studies. The methods of analysis, synthesis and correlation were used. These data highlight the relationship between unemployment, long-term unemployment and poverty. The results of the article are intended to provide information for reducing unemployment, limiting long-term unemployment, and reducing the risk of poverty in Slovakia.
The article discusses Richard Lipsey's (2000a, 2000b, 2010, 2016) criticism of the uniqueness of the macroeconomic equilibrium at constant inflation postulated by new-classical macroeconomic models. Lipsey's position is analysed in the light of his early contribution to the debate on the Phillips curve (Lipsey 1960). There, as later, Lipsey's argument rests on the assumption that the labour market, though characterised by a unique demand-and-supply equilibrium, may persist in disequilibria in the long run. Such proposition is discussed critically. Lipsey's analysis can be seen as a clear expression of the fundamental theoretical difficulty in reconciling Keynesian macroeconomic analysis with the neoclassical postulates.
Target2 is the Eurozone’s cross-border payment system, which is mandatory for the settlement of euro transactions involving Eurozone central banks. It is being used to save the Eurozone from imploding. A key underlying problem is that the Eurozone does not satisfy the economic conditions for being an Optimal Currency Area, i.e., a geographical area over which a single currency and monetary policy can operate on a sustainable, long-term basis. The different business cycles in the Eurozone, combined with poor labour and capital market flexibility, mean that systematic trade surpluses and deficits will build up because inter-regional exchange rates can no longer be changed. Surplus regions need to recycle the surpluses back into deficit regions via transfers to keep the Eurozone economies in balance. But the largest surplus country—Germany—refuses to formally accept that the European Union is a ‘transfer union’. However, deficit countries, including the largest of these—Italy—are using Target2 for this purpose. Target2 has become a giant credit card for Eurozone members that import more than they export to other members, but with two differences compared with normal credit card debt: neither the debt nor the interest that accrues on the debt ever needs to be repaid. Furthermore, the size of the deficits being built up is causing citizens in deficit countries to lose confidence in their banking systems, leading them to transfer their funds to banks in surplus countries. Target2 is also being used to facilitate this capital flight. However, these are not viable long-term solutions to systemic Eurozone trade imbalances and weakening national banking systems. There are only two realistic outcomes. The first is a full fiscal and political union, with Brussels determining the levels of tax and public expenditure in each member state—which has long been the objective of Europe’s political establishment. The second outcome is that the Eurozone breaks up.
This study seeks to determine the impact of remittances and nonlabor income on the duration of unemployment, and therefore on the hysteresis phenomenon in Colombia for the period between January 2010 and January 2021. The long-term unemployment rate in Colombia (LAPU) is calculated, and a vector autoregressive (VAR) model is subsequently estimated to evaluate the impact of remittances and nonlabor income on the LAPU. The results suggest that the increase in nonlabor income significantly affected LAPU in Colombia in the period analyzed. The growth of remittances instead turned out to positively and significantly impact LAPU only during the COVID-19 pandemic crisis. This suggests that remittances have become a fundamental income in times of crisis that allow for financing the search for work for a longer period of time, thus increasing the duration of unemployment and generating a hysteresis effect.
The question of whether welfare benefits imprison recipients in unemployment traps has been at the centre of academic and political debates in recent decades. Empirical evidence at the micro level supports the existence of work disincentive effects of welfare benefits, although of a small magnitude. However, the question of whether this translates into lower aggregate employment remains unsettled. This study innovates the existing literature by providing an estimation of the impact of the monetary component of the Italian minimum income scheme (MIS) on the employment rate. Isolating this impact from the spurious pro‐work effects of the Active Labour Market Policies embedded in every contemporary MIS is possible because in the Italian case, in the first quarters of implementation of the policy, the activation side was not operating. We adopt a difference‐in‐differences method and find that the impact of the monetary component of the Italian MIS on the employment rate is not statistically significant. The finding is robust to different treatment definitions, different specification models and weighted and unweighted econometric analysis. We then carry out a heterogeneous analysis and find that the impact, despite being indistinguishable from zero on average , is significant and negative for provinces with weak labour demand.
Unemployment is among the main economic problems not only for developed countries but also for underdeveloped countries. The European Union, which was mostly composed of developed Western European countries until 2004, has grown with the participation of Eastern European countries in the following years. In its current form, the European Union consists of countries with different levels of development. The European Union should undoubtedly consider this structure of the union in the economic policies it develops. The existence of unemployment hysteresis, which shows the situation in which unemployment, which increased after an economic shock, does not return to its former levels, is important for policymakers of the union countries, especially in terms of methods of combating unemployment. This study aims to examine unemployment hysteresis for the EU-15 and EU-28 over the average values in the 2001Q1-2019Q4 period. In addition to the traditional unit root tests of Augmented Dickey Fuller (ADF) and Phillips Perron (PP), the Fractional Frequency Fourier ADF Unit Root Test developed by Bozoklu et al. (2020) has been used as the methodology. The data are obtained from Eurostat, the official website of the European Union where statistics are published. As a result of the study, evidence is found that the hysteresis hypothesis is valid in EU-15 and EU-28 according to all three analyzes used. In the study, the use of the Fractional Frequency Fourier ADF Unit Root Test, which is the most up-to-date test, contributes to the literature.
Welfare recipients in Germany are allowed to take up supplementary jobs while receiving welfare. In the present study, we use the German Panel Study “Labour Market and Social Security” (PASS) for the years 2006–2014 to analyze the impact of these supplementary jobs on the chances of welfare exit. Dynamic multinomial logit models controlling for unobserved heterogeneity and endogenous initial conditions reveal that full‐time employed men and women are more likely to exit welfare into employment than their non‐employed counterparts. For supplementary part‐time jobs, however, we find no or (only in some specifications for men) much smaller stepping stone effects.
There is a basic opposition between a theory of equilibrium and a theory of evolution in dealing with the question of labor and employment. The one claims that an optimal state of the economy and of society, to which the fluidity of jobs and the flexibility of wages would be coupled, exists and is known beforehand. The other maintains that the search for the solidity of jobs and the viscosity of wages only makes sense in terms of the consequences that one expects in terms of the viability of an evolution whose contours it is not possible to know a priori. This opposition actually reveals distinct philosophies of knowledge, one referring to a preexisting reality, the other attentive to experience without a priori.
El artículo se propone pasar en revista las principales versiones de las teorías de la segmentación de los mercados de trabajo gestadas en el siglo XX y que siguen teniendo vigencia. En su origen se enfocaron en mostrar las insuficiencias de las teorías neoclásicas según las cuales los agentes que operan en el mercado son homogéneos y las barreras a la movilidad provienen en parte de las limitaciones técnicas existentes para sustituir trabajo por capital y reemplazar a trabajadores con diferentes calificaciones profesionales. La segmentación seria producida entonces por la imperfección temporaria de los mercados, sin asignar responsabili-dades a los empresarios que generan la diferenciación entre mercados internos y externos, primarios y secundarios, para evitar que caigan las tasas de ganancia. Los autores de estas teorías escribieron cuando estaba vigente el modo de desarrollo keynesiano-fordista (1945-1974), pero hoy en día la precarización del empleo y la diversificación de las formas especificas o particulares de empleo le han dado actualidad. Entre las causas señaladas figura la importancia de las instituciones, de las políticas de empleo y de la legislación del trabajo flexibilizadora.
While unemployment seems to have climbed the political agenda of wealthier countries since the economic and financial crisis of 2008, periodic crises and high levels of unemployment have plagued poorer countries since at least the late 1980s, and the same might be said for many Western European countries as well. There are significant differences between the methodological approaches, spatial emphasis, and explanations offered by economists and noneconomists (including geographers) for unemployment. This is especially the case concerning the analysis of unemployment in poorer countries. Furthermore, noneconomist scholars working in poorer countries over the last 20 years seem to focus far more on gender expectations and women's (un‐)employment as well as “youth unemployment.” Yet, increases in youth unemployment in the wealthier countries since 2008, together with growing inequality, have led to debates about the continual presence of an “underclass,” now often referred to as “the precariat.”
This paper analyses the stochastic properties of UK nominal and real wages over the period 1750–2015 using fractional integration techniques. Both the original series and logged ones are analysed. The results generally suggest that nominal wages exhibit a higher degree of persistence, which reflects relatively long lags between inflation and wage adjustments. Endogenous break tests are also carried out and various structural breaks are identified in both series. On the whole, the corresponding subsample estimates imply an increase over time in the degree of persistence of both series.
What produces a happy society and a happy life? Thanks to the new science of wellbeing, we can now answer this question using state-of-the-art empirical evidence. This transforms our ability to base our decisions on the outcomes that matter most, namely the wellbeing of us all including future generations. Written by two of the world's leading experts on the economics of wellbeing, this book shows how wellbeing can be measured, what causes it and how it can be improved. Its findings are profoundly relevant to all social sciences, including psychology, economics, politics, behavioural science and sociology. A field-defining text on a new science that aims to span the whole of human life, this will be an invaluable resource for undergraduate and graduate students, policy-makers and employers, who can apply its insights in their professional and private lives. This title is also available as Open Access on Cambridge Core.
This paper analyses the entire wage effects of unemployment for an especially long observation period. In a three‐step approach, the wage reaction at the national level (wage‐setting curve or aggregate wage equation) is added to the reaction at the regional level (wage curve). Spatial models with instrumental variables are used.
This paper tests the difference of the solidarity behavior between employed and unemployed subjects. We replicate an experimental design of the solidarity game as in Selten and Ockenfels (1998) and extend it by using data from the labor market. We find that employed subjects show more solidarity, are less selfish compare to unemployed subjects. Unemployed subjects show more free-riding behavior and act more egoistically. We also focus on differences among unemployed subjects, who join additional expenses compensation program voluntarily show more solidarity than subjects who join non-voluntarily. The findings are robust when we control for income differences.
Bu çalışma Danimarka ve İsveç için işsizlik histerisi hipotezinin geçerliliğini sınamaktadır. Ampirik analiz için gerekli işsizlik oranı verileri OECD veri tabanından sağlanmıştır. Analiz dönemi (OECD veri tabanındaki veri mevcudiyetine bağlı olarak) Danimarka için 1969–2022 dönemini, İsveç için ise 1960–2022 dönemini kapsamaktadır. Çalışmada yıllık frekanslı veriler kullanılmıştır. Yıllık frekanslı verilerin seçilme nedeni mevsimsel etkilerden kaçınmaktır. İşsizlik oranı verileri ham haliyle kullanılmamıştır. Analizde lojistik dönüşümlü işsizlik oranları dikkate alınmıştır. Çalışmada lojistik dönüşümlü işsizlik oranı serilerinin durağan olup olmadığı araştırılmıştır. Danimarka verileri için Kapetanios vd. (2003) tarafından önerilen doğrusal olmayan birim kök testi ve Hepsag (2021) tarafından önerilen doğrusal olmayan birim kök testi uygulanmıştır. Hepsag (2021) tarafından önerilen testin Kapetanios vd. (2003) çalışmasında önerilen testten genel olarak daha güçlü olması nedeniyle Hepsag (2021) tarafından önerilen birim kök testinin sonucu dikkate alınmıştır. İsveç için ise hem bazı geleneksel testler [ADF birim kök testi, Elliott vd. (1996) tarafından önerilen birim kök testi, Kwiatkowski vd. (1992) tarafından önerilen durağanlık testi, Phillips ve Perron (1988) tarafından önerilen birim kök testi] hem de Carrion-i-Silvestre ve Sansó (2007) tarafından önerilen ve yapısal kırılmaları dikkate alan durağanlık testi uygulanmıştır. Bunlar arasından Carrion-i-Silvestre ve Sansó (2007) tarafından önerilen testin sonucu dikkate alınmıştır. Ampirik analiz neticesinde Danimarka ve İsveç için işsizlik histerisi hipotezinin geçerli olmadığı sonucuna varılmıştır. Ayrıca çalışmada politika yapıcılar için önemli önerilerde bulunulmuştur.
In 2017 the Scottish Government passed the Child Poverty (Scotland) Act with the commitment to significantly reduce the relative child poverty rate from the current prevailing level of around 25% to 10% by 2030/31. In response, the government introduced the Scottish Child Payment (SCP) that provides a direct transfer to households at a fixed rate per eligible child – currently £25 per week. In this paper we explore, using a micro to macro modelling approach, the effectiveness of using the SCP to achieve the Scottish child poverty targets. While we find that the ambitious child poverty targets can technically be met solely using the SCP, the necessary payment of £165 per week amounting to a total government cost of £3 billion per year, makes the political and economy-wide barriers significant. A key issue with only using the SCP is the non-linearity in the response to the payment; as the payment increases, the marginal gain in the reduction of child poverty decreases – this is particularly evident after payments of £80 per week. A ‘policy-mix’ option combining the SCP, targeted cash transfers and other policy levels (such as childcare provision) seems the most promising approach to reaching the child poverty targets.
Unemployment persistence
George S. Alogoskoufis and Alan Manning
A comparison of unemployment across fourteen European countries, Japan and the US shows a great diversity of persistence: high in most of Europe outside the Scandinavian countries, Austria and Switzerland, low in Japan and the US.
Three reasons for unemployment persistence are examined. First, employed workers may not care about the unemployed, and only wish to protect their own jobs. The authors find little support for this view, except perhaps in the US. Second, workers may be reluctant to revise downward their wage aspirations. This seems to be the case in Europe, as opposed to the US and Japan. Third, firms may be slow in adjusting employment to its optimum level. This is the case in Europe and Japan, not in the US.
Labour market reforms might help, but have their own costs. The authors conclude that the best course of actions is a demand expansion combined with incomes policies.
Consider an economy subject to two kinds of shocks: (a) an observable shock to the relative demand for final goods which causes dispersion in relative prices, and (b) shocks, unobservable by workers, to the technology for transforming intermediate goods into final goods. A worker in a particular intermediate goods industry knows that the unobserved price of his output is determined by (1) the technological shock that determines which final goods industry uses his output intensively and (2) the price of the final good that uses his output intensively. When there is very little relative price dispersion among final goods, then it doesn't matter which final goods industry uses the worker's output. Thus the technological shock is of very little importance in creating uncertainty about the worker's marginal product when there is little dispersion of relative prices. Hence an increase in the dispersion of relative prices amplifies the effect of technological uncertainty on a worker's marginal value product. We consider a model of optimal labor contracts in a situation where the workers have less information than the firm about their marginal value product. A relative price shock of the type described above increases the uncertainty which workers have about their marginal value product. We show that with an optimal asymmetric information employment contract the industries which are adversely affected by the relative price shock will contract more than they would under complete information (i.e., where workers could observe their marginal value product). On the other hand the industry which is favorably affected by the relative price shock will - not expand by more than would be the case under complete information. Hence an observed relative demand shock, which would leave aggregate employment unchanged under complete information, will cause aggregate employment to fall under asymmetric information about the technological shock.
This article examines the relationship between financial liberalization and stock market volatility in Indonesia. By looking at the time series properties of the Jakarta Composite Index (JCI) we identify breaks in stock market volatility which coincide with the timing of major policy events. Our main findings are (i) a significant decrease in volatility after the 'official' opening of the stock market to foreign participation; (ii) a significant increase in volatility in the year before market opening following reforms that eased entry requirements and the issuance of brokerage licenses and (iii) a significant increase in volatility at the time of the Asian crisis followed by a significant decrease in the second and sixth years after the crisis.
Spanish unemployment
Samuel Bentolila and Olivier J. Blanchard
Spain has experienced very high inflation in the 1970s and extremely high unemployment in the 1980s; the latter still stands at 16.6% today, with inflation rising again. In this paper we argue that Spain has suffered from the same problems as most European countries, but in a stronger form. The specificity comes from the Franco legacy, which left Spain in the mid-1970s with both an archaic system of labour relations and an inadequate production structure. We find the cause of the inflation explosion in a wage push, itself originated in a breakdown of labour relations; and trace the initial rise in unemployment to the non-accommodating stance of monetary policy.
Turning to the large magnitude of the increase in unemployment and its steadily decreasing effects on inflation, we argue that three mechanisms were at work: a decrease in capital accumulation caused by the wage explosion and monetary contraction; labour shedding on a large scale; and ‘hysteresis’ effects, whereby high unemployment led to changes in the labour market, resulting in higher equilibrium unemployment.
We infer that there is an important bootstraps component to Spanish unemployment. Thus, much lower unemployment is feasible, and achievable at steady speed with little inflation cost; policies aimed at undoing some of the endogenous changes in the labour market would make it easier and faster.
Profit-sharing and employee share ownership
Saul Estrin, Paul Grout and Sushil Wadhwani
This paper evaluates the likely effects of linking a part of a worker's pay to the employer's profits. It has been suggested, by Weitzman, that this would raise employment by lowering the cost of taking on an extra worker. However, this can only happen if existing workers are willing to let their share of value added fall, and experience of those firms in the UK who already operate profit-sharing schemes suggests that the Weitzman mechanism is not operative.
There is, however, some evidence that profit-related pay does boost productivity; but there are other ways of raising productivity, such as performance-related pay, which may be more effective. Productivity-enhancing effects are likely to be greatest when employees are involved in decision-making as well, but this is likely to undermine the Weitzman case still further.
Even if the argument that profit-sharing raises employment is not compelling, it is sometimes suggested that it can do little harm. However, there is evidence that it may well be inflationary, in which case the government would be advised to proceed cautiously.
We argue that there is very little case for the introduction of a permanent subsidy to encourage increased profit-sharing, although there may be a case for a temporary one to overcome managerial inertia. However, there is a danger that a subsidy will promote ‘cosmetic’ schemes designed to be eligible for the subsidy but which do not reflect any real change in behaviour.
Nordic employment
Lars Calmfors and Ragnar Nymoen
Sweden and Norway, but also Finland, have managed to avoid the general Western European rise in unemployment. The article discusses to what extent this can be explained by a smoothly functioning wage-setting system and by active labour market policies.
The analysis confirms earlier findings of an unusually large responsiveness of wages to unemployment in Sweden and Norway. It is, however, questionable whether this can be explained by centralized bargaining. Nor do the authors find any evidence that ‘corporatist’ tax-wage bargains should have contributed to wage restraint. The absence of hysteresis effects may be one explanation of why unemployment rises were easily reversed.
The most controversial finding is that active labour market policies may have strong wage-raising effects. If so, labour market programmes may actually reduce regular employment and even increase open unemployment. The authors argue that a reduced – rather than an increased – emphasis on labour market policies may have been an important factor for real wage restraint especially in Sweden. This may be an important lesson for those who regard extensive labour market programmes of the Swedish type as a blueprint to follow.
A model of the determination of wages and employment in a unionised economy with nonsynchronised wage setting is presented in this paper. It is shown that a monetary deflation can lead to prolonged unemployment even though the unions act rationally and with full information about the change in policy. The model generates a "statistical" Phillips curve in which the rate of change of money wages depends on the anticipated growth rate of the money supply and on "disequilibrium" unemployment. Conventional incomes policies are shown to have desirable social effects, but run counter to the perceived self-interest of the trade unions and are therefore likely to be resisted. Taxes on wage increases have desirable long-run effects, but do not appear able to reduce the transitional unemployment costs of monetary deflation.
This paper is concerned with the specification and estimation of a genuinely structural but static model of individual search behaviour in which the estimated reservation wage actually satisfies the optimality condition. The identification of the parameters of interest is achieved by the a priori specification of the vacancy-wage distribution. The model is estimated using the data from the 1978–1979 D.H.S.S. Cohort Study of the Unemployed. The estimated parameters reflect, in the main, our prior views and generate a number of interesting results. In particular the elasticity of unemployment spell duration with respect to unemployment benefits is estimated to be around 0.18–0.26.
This chapter describes unemployment in the long run. It presents the time path of unemployment in the United States, the United Kingdom, and Europe. There is an upward trend for unemployment in the United States; but in Europe, there has been an astonishing growth with unemployment rising in all but one of the last 15 years. This explains why the unemployment rates are so different for different groups of people in society. For example, unemployment rates are typically higher for young people than for older people. They are also higher for the unskilled, for blacks, and for workers in certain industries. These differences are closely related to the different rates of turnover of the different groups. To explain unemployment, three main types of model are constructed. The first of these is based on supply and demand and assumes that without government intervention these are, in the long run, equal. However, even without wage regulation there may be excess supply of labor and involuntary unemployment may persist because of the wage-setting behavior of monopsonistic firms or of monopolistic unions or because of bargaining between the two. Thus, second set of models has wages set by firms, and the third has wages set by unions.
Harsanyi [1], after translating Zeuthen's bargaining theory [5, Ch. 4] into modern utility terms, has shown that it implies the same outcome as Nash's theory [4], namely a settlement that maximizes the product of the utility increments of the two parties. In the same paper, Harsanyi also reviewed Hicks's comparable theory [2, pp. 140-45] and found it, understandably, distinctly inferior to Zeuthen's. The context that both Zeuthen and Hicks had in mind was labor-management bargaining, where agreements and conflicts have time dimensions. Specifically in such situations, it will be suggested, it is possible to combine the central conceptions of both Zeuthen and Hicks in a composite theory that is superior to either of the separate ones. To prepare the way for the composite theory's presentation, its components will be briefly summarized.
Employee theft is estimated to cost American business up to $40 billion annually. The costs to society include increased business failures, along with the resulting losses in jobs and tax revenues, and higher prices passed on to consumers. An intangible societal cost is the operation of the private justice system, completely separate from the criminal justice system. Because private employers focus on preventing crimes against their businesses, including employee theft, apprehending and prosecuting criminals ex post facto is rarely a priority, and prosecution is often avoided as troublesome and unsettling. Employee thieves generally do not feel any long-term commitment to the employer and are not motivated by financial need.
A nationwide sample survey was conducted in Janurary 1973 to investigate the job search methods workers used and their effectiveness. Prepared by the Bureau of Labor Statistics and the Manpower Administration in cooperation with the Bureau of the Census, the survey covered nearly 16 million employed wage and salary workers 16 years of age and above, who were not in school, and had started their current job in 1972. Two broad categories of search methods are recognized: informal methods, including direct application to employers and asking friends; and formal methods, including State and private employment agencies, school placement offices, union hiring halls, and newspaper advertisements. Seven tables supplement the test, which discusses job seeker characteristics; methods used and their effectiveness; work history and job search; job search timing, duration, and intensity; job refusal; earnings; and suggestions for further study. Half the document is taken up by extensive reference tables. The appendix discusses survey reliability and concepts and presents the questionnaire used. Major findings include: two out of three jobseekers applied directly to employers, with half of them obtaining jobs; greater proportions of blacks than whites asked friends for jobs; and four methods were generally used before a job was found. (LH)
Britain's industrial strategy was not equal to the task of overcoming the massive inertial resistance to change manifested by the British industrial system—not least because it still failed altogether to address the problem of the trade unions, possibly the strongest single factor militating against technical innovation and high productivity
This paper examines the five-dollar day compensation policy instituted by the Ford Motor Company in 1914 in light of recent developments in wage-determination theory. The new wage was above the opportunity cost of the labor employed. Yet various efficiency wage theories, by which high wages increase output, are shown to provide an implausible explanation. The particular (and epochal) technical change that occurred at Ford and the attitudes and beliefs of relevant actors suggest instead a rent-sharing theory driven by the threat of collective action by labor. This confluence, not the money, marks the episode as a watershed.
Unemployment insurance is analysed in the optimal taxation framework. Benefits discourage search and thus raise unemployment. A perfect capital market model is developed and solved explicitly for a constant absolute risk aversion utility function. For ‘realistic’ parameter values low replacement rates (less than 50%) are optimal. If there is no lending or borrowing the optimal rates rise to about 75%. Alternative models also admit leisure as a good and the input to search; this reduces optimal replacement when the capital market is perfect. When it is nonexistent the optimal benefits depend on the value of leisure - rising as it falls. Alternatives to constant benefits conditional on continued unemployment are considered.
A model of long-term contracts is developed in which the choice of the negotiation pattern is endogenized. When disturbances to the economy derive primarily from relative shocks, staggered negotiation is optimal because adjustments made by negotiating agents transmit desirable employment effects into sectors that are looked into previously negotiated contracts. The price level acts as the transmission mechanism. Indexation of wages to the price level enhances the benefits of staggered negotiation because the sector-specific information revealed by the price level acts as a substitute for explicit inclusion in the contract of sector-specific information. The degree of persistence and the level of variation in aggregate output and employment, measures which are commonly used in comparing the merits of synchronized versus staggered regimes, are shown to be inappropriate criteria upon which to judge the optimality of the negotiation pattern.
Recent years have seen considerable advances in the econometric treatment of micro data in models of unemployment duration. This paper examines the evidence from such models concerning the effects of unemployment benefits on incentives to work in Britain. Widely accepted results of a small but significant benefit effect are reproduced using a sample of 1,231 unemployed men. However, these results are only found when benefit receipt is assumed to follow a hypothetical pattern which is shown to be unrealistic and over-generous. When more realistic calculations of benefits are used, no benefit effect is found. The paper also argues that search theory is of little help in determining the choice between competing functional forms and explanatory variables. Results concerning benefits are shown to be sensitive to the latter.
In this paper we propose a test that discriminates among alternative models of bargaining for wages and employment. The test rests on a theoretical framework which encompasses both the labour demand and the efficient bargain models of wage and employment determination. It is based on testing the cross equation restrictions implied for the coefficients of union power variables in reduced form wage and employment equations. The test is illustrated for the Layard and Nickell model of the aggregate UK labour market, for which it is found that one can reject both the labour demand model and the hypothesis that wage employment bargains are efficient, in favour of a generalised model of inefficient bargaining for wages and employment.
This paper extends the basic, multimarket model of Lucas (1973), to explicitly consider the labour market. It builds on an important distinction between the product wage, entering the decision function of firms, and the real wage, entering the decision function of workers. Because of the unobservability of the price level workers make forecasting errors in trying to calculate their real wage, despite having rational expectations. This gives rise to a Phillips curve. The major new result of the paper is the demonstration that wages are less variable than prices, which offers an equilibrium interpretation of wage stickiness.
This paper sets up a simple model of a unionised economy and shows that the introduction of profit-sharing unambiguously reduces the unemployment rate. The result arises because unions are assumed to care about the employment of their members but cannot bargain over employment directly. Profit-sharing reduces the perceived cost, in terms of worker income foregone, of increasing employment in the firm. In the economy as a whole, the equilibrium unemployment rate falls.
Japan has a relatively unique system of labor compensation. Most Japanese workers are paid large bonuses twice a year. This paper examines the cyclical movement of bonuses compared with wages and the relation of bonuses to employment in the context of the Weitzman “share economy.” The paper makes three basic points: (1) The Japanese bonus is much more procyclical than Japanese base wages, but not as cyclically variable as profits. Bonuses can be interpreted as containing a quantitatively significant revenue- or profit-sharing component. (2) Bonuses have employment consequences quite different from those of base wages. Even after controlling for other economic factors, bonuses are positively related to employment, whereas base wages are negatively related to employment. (3) The bonus system of paying workers seems to play a modest role in helping to stabilize Japanese unemployment at comparatively low levels.
Unemployment in Britain has risen from around 2 per cent in the late 1950s and early 1960s to around 3 per cent today. What accounts for this astonishing increase?
Unemployment, policies
Richard Jackman, Christopher Pissarides and Sawas Savouri
The massive increase in unemployment throughout the OECD since the early 1970s has led governments in many countries to introduce, or to expand, labour market policies such as training schemes, employment subsidies, public works or schemes of counselling or assistance in job search. Such programmes have the objective of reducing unemployment by improving the workings of the labour market. After a description of these programmes, this article proposes a framework, based on the relationship between unemployment and vacancies (or Beveridge curve), within which the rise in unemployment can be analysed and the effects of policies and of institutions examined. This framework helps to identify the main factors which have affected the unemployment and vacancy rates in 14 of the main OECD countries over the period 1970–88. The main results are that while corporatism remains the institutional feature with the biggest single impact in sustaining low unemployment rates, labour market policies also have had a significant and well-defined effect on unemployment, which appears large relative to the budgetary costs of the programmes.
Since 1975 labour slack has been unusually high in the OECD countries, and yet inflation has not diminished. The less favourable
mix of unemployment and rate of change of inflation (which we call stagflation) is explained by a fall in the feasible rate
of growth of real wages unmatched by a reduction in the constant term in Phillips curve. To investigate this mechanism, conventional
wage and price equations are estimated for 19 countries and then used for simulation. Stagflation has been caused in roughly
equal amounts by rising relative import prices and by the fall in the rate of productivity growth. In the basic model the
Phillips curve is assumed not to adapt to falls in feasible real wage growth, but in a final section an adaptive wage equation
is estimated, which confirms that the process of adaptation is slow.
This paper makes use of panel data to consider the effects of unionization, schooling, sickness, and unemployment on individual earnings. Our results may be summarized as follows. The unionization effect is around 15%-20%. This measure is consistently estimated controlling for both fixed individual attributes and serially uncorrelated measurement error. Sickness has little immediate impact, but there is some indication that after 4 years earnings have fallen permanently by around 8% consequent on a 10-week spell of sickness. A spell of unemployment, on the other hand, leads to a sharp fall in earnings, but this effect decays rapidly leaving the possibility of a small permanent impact. Finally, controlling for all fixed individual attributes, we are unable to pin down the schooling effect with any accuracy owing to the absence of instruments that are both valid and effective within the data set.
Using a large scale, longitudinal micro data base this paper tests for the determinants of union wage settlements in manufacturing. Alternative specifications of wage change relationships were tested in data covering the years 1957 to 1980. Among the most important determinants of union wage changes were the expected inflation rate, inflationary surprises (in indexed agreements), incomes policy dummy variables and spillovers from key national agreements. Catch-up effects from lagged inflationary surprises were not important in determining the size of new settlements.
This paper defines a concept, a worker's trust fund, which is useful in analyzing optimal age-earnings profiles. The trust
fund represents what a worker loses if dismissed from a job for shirking. In considering whether to work or shirk, a worker
weighs the potential loss due to forfeiture of the trust fund if caught shirking against the benefits from reduced effort.
This concept is used to show that the implicit bonding in upward sloping age-earnings profiles is not a perfect substitute
for an explicit up-front performance bond (or employment fee). It is also shown that the second-best optimal earnings profile
in the absence of an up-front employment fee pays total compensation in excess of market clearing in a variety of stylized
cases.
We study a general equilibrium efficiency wage model characterized by fully optimizing agents, flexible prices, and imperfect
information. The model has a unique competitive equilibrium with underemployment in a sector (called manufacturing) with efficiency
wages, relative to a self-employment sector. Since prices are flexible, the multiplier of manufacturing output with respect
to autonomous demand changes may or may not exceed unity: demand changes lead to price effects as well as income effects that
work opposite each other. Nevertheless, there always exist government policies that achieve Pareto improvements by switching
demand toward the manufacturing sector. Optimal demand-switching policies are explicitly characterized.
This paper rehabilitates the old wage price spiral. It shows that, after an increase in aggregate demand, the process of adjustment
of nominal prices and nominal wages results from attempts by workers to maintain or increase their real wage and by firms
to maintain or increase their markups of prices over wages. Under continuous price and wage setting, the process of adjustment
would be instantaneous; under staggering of price and wage decisions, the adjustment takes time. The more inflexible real
wages and markups are to shifts in demand, the higher is the degree of price level inertia, and the longer lasting are the
effects of aggregate demand on output.
This paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector
and a “competitive” secondary sector. Either permanent or temporary changes in real aggregate demand are shown to widen the
intersectoral wage differential in recession and, under reasonable specifications of key parameters, to cause greater fluctuations
of primary-sector employment than secondary-sector employment. This pattern agrees with the stylized facts of the U. S. economy.
Zusammenfassung InflationsbekÄmpfung ohne Rezession. — In dieser Arbeit wird das Theorem begründet, da\ ein einziger Pfad der Kontrollvariablen
für die Gesamtnachfrage — hier der Geldversorgung — existiert, auf dem die Verminderung der Inflation auf das erwünschte Niveau
vorgenommen werden kann, ohne da\ die BeschÄftigung auch nur zeitweise von der »natürlichen Rate« abweicht — und das trotz
gestaffelter und deshalb sich überlappender Lohnabschlüsse ohne Indexbindung mit fester Laufzeit. Der Beweis ist abhÄngig
von dem Postulat perfekter Voraussicht in bezug auf die Entwicklung des durchschnittlichen Lohnsatzes und der Geldversorgung.
In der Praxis würde der Erfolg eines solchen Programms zur InflationsbekÄmpfung die Einrichtung von Lohn-Leitlinien erfordern,
die die Erwartungsbildung erleichtern.
The ability of a "share economy" to absorb adverse shocks without generating unemployment is not robust to changes in the specification of the labor market. In the presence of elastic short-run labor supply, inside workers, or efficiency wages, there may be more employment fluctuation at firms offering share contracts than at firms offering fixed-wage contracts. Copyright 1991 by Royal Economic Society.
This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.