Hidden Unemployment in Estonia: Experience from the Early Years of Transition (1989‐1996)

The aim of this article is to develop and deepen the discussion on this topic and analyse the methods of measuring hidden unemployment. This is important for giving an adequate overview of the situation of the labour market in Estonia and the scope of hidden unemployment and its development in the transition period. The following tasks are set to achieve this aim: to estimate different components of hidden unemployment in Estonia and to analyse the factors that influence this phenomenon in Estonia and thence form policy conclusions. In the analysis data from the Estonian Labour Force Survey (ELFS 97) carried out in 1997 are examined. Three logit models were calculated (for unemployed, underemployed and discouraged persons). The most important findings were that there are no general factors which could influence open and hidden unemployment at the same time, and that the factors influencing the components of hidden unemployment differ—underemployment is probably influenced more by economic factors and discouragement more by psychological factors.     

Reworking the Wage Curve: Exploring the consistency of the model across time,space and demographic group

This paper extends Blanchflower & Oswald's (1994) work on the wage curve to the 50 largest metropolitan areas in the United States. The wage curve is more elastic in US metropolitan areas than prior research shows for the nation as a whole, and the wage curve varies over the business cycle, becoming more elastic in periods of higher unemployment. The most striking finding is that black workers have a more elastic wage curve than do white workers. Estimating the wage curve with the non-employment rate, a measure of underemployment, shows elasticities that are substantially higher than for wage curves estimated with the unemployment rate. This trend further increases the negative effects on pay for blacks, who are more likely than white workers to be underemployed.     

Underemployment in Australia: a panel investigation

This 2001–2013 panel study finds 33% of part-time employees to be underemployed, disproportionately affecting males, immigrants, youth, the blue-collared and new to our study, those on casual contracts. Within the underemployed sample, we report that the gap between preferred and actual hours (working hour tension) also varies by personal and labour characteristics, largely consistent with that found for the determinants of underemployment. The continued growth of part-time employment and casualization in recent years has been more pronounced among males, raising their rates of underemployment as they disproportionately prefer to work more hours vis-à-vis their part-time female peers.     

The Role of Governments in Aligning Functional Income Distribution with Full Employment

Demand is an incentive for investment. The latter is necessary to create employment. If demand lags behind supply, then unemployment and underemployment rise. Persistent unemployment and underemployment indicate a dysfunctional price mechanism. Then, only governments can stimulate demand. They may equalize ex ante saving and investment by public investment, income redistribution, or market regulation.     

Rural-urban migration,urban unemployment and underemployment,and job-search activity in LDCs

A quantity adjustment framework is used to analyze unemployment and underemployment in less developed countries (LDCs). The basic premise of the formal theoretical model presented is that the same kinds of forces that explain the choices of workers between the rural and urban sectors can also explain thier choices between 1 labor market and another within an urban area and are most likely made simultaneously. The decision makers, whether family units or individuals, are presumed to consider the various labor market opportunities available to them and to choose the one which maximizes their expected future income. In the model the primary equilibrating force is taken to be the movement of workers between labor markets, not changes in wages. The point of departure is the received theory of rural urban migration in LDS, which is the model of Harris and Todaro (1970). The 1st step is a summary of the basic features of the model. While accepting their basic approach emphasizing movement of workers rather than changes in wages, it is shown that the particular implication of the model with respect to the equilibrium urban unemployment rate substantially overstates the rates actually observed by Turnham (1971) and others. The analysis is then extended to consider several important factors which have previously been neglected--a more generalized approach to the job search process, the possibility of underemployment in the so-called urban "murky sector," preferential treatment by employers of the better educated, and consideration of labor turnover--and demonstrate that the resulting framework gives predictions closer to actual experience. Harris and Todaro in their original discussion concluded that a combination of a wage subsidy in the modern sector and physical restriction of migration would be required to realize a first best state lying on the economy's production possibility frontier. Subsequently Bhagwati and Srinivasan (1974) challenged them and demonstrated that a first best solution can be achieved by means of a variety of alternative tax or subsidy schemes, none of which require migration restriction. This analysis suggests 3 additional policy variables, beyond those considered by either pair, which might be expected to have an important effect on the volume of unemployment and underemployment in LDCs: a smoothly functioning labor exchange would reduce the incentive to remain unemployed while searching for a superior job; the size of the educational system would also influence the amount of unemployment; and it is job hiring in the modern sector, more than the number of jobs, which primarily influences workers' locational decisions.     

Optimal unemployment insurance with heterogeneous agents

The framework of a general equilibrium heterogeneous agent model is used to study the optimal design of an unemployment insurance (UI) scheme and preferences for unemployment policy reforms. In a first step, the optimal defined benefit and defined replacement ratio UI systems are obtained in simulations. Then, the question whether switching to such an optimal system from the status quo would be approved by a majority of the population is explored. Finally, the transitional dynamics following a policy change are analysed. Accounting for this transition has an important influence on the support for a policy change.     

Real option,human capital investment returns and higher educational policy

This paper incorporates the concept of real option into a modified Harris–Todaro model to investigate the relationship between higher education and unemployment rates. We found that the real option value of waiting to invest in graduate school education will decrease when the expected wage rate of labors with an undergraduate degree becomes relatively lower than that with a graduate degree. As a result, more undergraduate students will decide to go to graduate schools immediately after graduation. As the supply of labors with a graduate degree increases and the job creations fail to meet the increasing demand, those who cannot get a graduate-level job will be willing to accept job offers lower than their education level. Our modified Harris–Todaro model shows that it will lead to an increase in the number of unemployed and underemployed higher educated labors. This explains why the unemployment rates for higher educated labor are relatively high in some developed countries.     

LDC stabilization policies,price and output adjustment: theory and evidence, 1974–83

This paper introduces a method for the analysis of regional differences in the utilization of labour resources. The method developed is a version of ‘components-of-change’ analysis in which labour force utilization in each regional labour market is compared with the sitation of a labour market with the highest level of utilization. The aggregate measure is split up into three components: open (registered) unemployment, hidden unemployment and underemployment. The effects of structural factors on aggregate differences are also estimated. In the empirical section the situation of Finnish provinces in 1989 is analysed within the framework developed. The results indicated the existence of large regional differences in the utilization of labour resources.     

The inflation bias when the central bank targets the natural rate of unemployment

This paper studies the proposition that an inflation bias can arise in a setup where a central banker with asymmetric preferences targets the natural unemployment rate. Preferences are asymmetric in the sense that positive unemployment deviations from the natural rate are weighted more (or less) severely than negative deviations in the central banker's loss function. The bias is proportional to the conditional variance of unemployment. The time-series predictions of the model are evaluated using data from G7 countries. Econometric estimates support the prediction that the conditional variance of unemployment and the rate of inflation are positively related.     

Redistribution and employment policies with endogenous unemployment

We study optimal redistribution policy in an economy with three types of unemployed persons: those unable to work, the voluntarily unemployed, and the involuntarily unemployed. Both voluntary and involuntary unemployment are endogenous. Voluntary unemployment arises because individuals have different preferences, while involuntary unemployment results from frictions in the labour market or from an efficiency wage. We consider the employment policies of a well-informed government when it can and cannot commit to its policies. The model is simple, yet rich enough to reflect real-world policies, including transfers to the disabled, welfare for non-working employables, unemployment insurance, employment subsidies, and taxes on workers and firms.     

Social Status,Labour Market Frictions and Endogenous Growth

This paper develops an endogenous growth model that incorporates wealth‐enhanced preferences for social status and labour market frictions to investigate the role of social status in determining unemployment and long‐run growth. We show that the increase in the desire for social status reduces the unemployment rate, but its effect on long‐run growth is unclear. We then calibrate our model to the US economy and find that an increase in the desire for social status lowers the unemployment rate and enhances the economic growth rate in the long run.     

Hidden underemployment among Irish farm holders 2002–2011

This article examines the scale of hidden underemployment on Irish farms from 2002 to 2011. We provide a measure of hidden underemployment that is not captured by the national-level statistics. Hidden underemployment can be attributed to a number of factors relating to inadequate employment situations as described at the 16th International Conference of Labour Statisticians such as low productivity, the poor utilization of skills and other factors specific to agriculture. We place particular attention upon the potential role of off-farm labour supply in solving the underemployment problem. We utilize a two-stage residual inclusion model and a random effects probit model to examine the forces behind farm underemployment. We utilize a fixed effects model to examine the factors driving the severity of farm underemployment. Our findings suggest that instances of hidden underemployment increased between 2002 and 2011. Hidden underemployment appears to be a stubborn problem and is related to the absence of off-farm employment, low yield, livestock intensity and smaller than average farm size in the sheep and drystock cattle sectors in particular.     

中国就业发展新论——核心就业与非核心就业理论分析

正如企业创新作为市场经济的基本动力受到忽视 ,核心就业作为市场就业的基础在中国经济改革以来一直没有受到足够重视 ,因此造成了今天就业发展特别困难的局面。核心就业是指直接参与、引导、促进和扶持企业创新活动的那部分就业。在长期 ,核心就业的兴衰决定了市场经济中总体就业的兴衰。中国企业的核心就业水平目前仅达到 2 5%左右 ,总体核心就业水平达到 3 0 %左右。为了达到 80 %左右的市场一般核心就业水平的目标 ,中国需要改变现行的国有企业改革模式 ,建立政府权力均衡机制 ,以良性发挥政府功能 ,以及完善农村的改革和发展道路等各项政策措施。     

Episodes of unemployment reduction in rich,middle-income and transition economies

This paper studies the incidence and determinants of episodes of drastic unemployment reduction, defined as swift, substantial, and sustained declines in unemployment. We identify 43 episodes over a period of nearly 3 decades in 94 rich, middle-income and transition countries. Unemployment reductions often coincide with an acceleration of growth and an improvement in macroeconomic conditions. Episodes are much more prevalent in countries with higher levels of unemployment and, given unemployment, are more likely in countries with better regulation. An efficient legal system that enforces contracts expeditiously is particularly important for reducing unemployment. The results imply that while employment is largely related to the business cycle, better regulation reduces likelihood of high unemployment and facilitates a more rapid recovery in the event unemployment builds up.     

Implicit contracts with effort incentives

The model combines the principal-agent approach with the analysis of labor contracts under demand uncertainty. Given the necessity to impose effort incentives the optimal contract is shown to maintain an efficient insurance with respect to the demand uncertainty and the employment risk. However, this efficient insurance may now yield either voluntary or involuntary layoff unemployment. Further, the optimal effort levels entail “underemployment” given adominant strategy incentive mechanism as well as under aNash-equilibrium mechanism. In contrast, the optimal employment levels fall short of achieving efficient production only in the latter case.     

An Empirical Analysis of Working-Hours Constraints in Twenty-one Countries

The aim of this paper is to analyze working-hour constraints in an international setting. We use data from the latest Work Orientations data set of the International Social Survey Program (ISSP). The survey was conducted in 1997 and, in this paper, data for twenty-one countries are used. Our main results are: (1) In most countries the majority of workers do not face hours constraints; (2) Of the workers that are constrained, the largest portion is underemployed. Only in Denmark, Norway, and Switzerland is this not the case; (3) Workers in the five Eastern European countries considered here are among the most constrained; (4) A comparison with the 1989 ISSP data set reveals that hours constraints have increased in Israel, the United States, and West Germany and decreased in Great Britain and Norway in the 1990s; (5) GDP per capita and unemployment levels are correlated with hours constraints; (6) A multivariate analysis shows that certain socio-demographic characteristics and work conditions influence hours constraints and that these factors differ across countries.     

Social Preferences,Sorting, and Competition*

In this paper, I investigate how an increase in competition for workers influences the impact of social preferences on labor‐market outcomes. By sorting themselves into firms with homogeneous work forces, workers can ensure that they suffer less from social comparisons. Competition promotes choice and thus facilitates sorting. However, competition also boosts rent differences in the labor market, because firms cannot curb internal inequity among its employees without losing workers to competitors. To reduce their exposure to social comparisons, workers might engage in inefficient sorting into unemployment. Consequently, social preferences can have strong effects (i.e., unemployment) in a competitive labor market, whereas they only have a slight impact on labor‐market outcomes in a monopsony.     

Market forms and effective demand: Keynesian results with perfect competition ∗

In recent years there has been a flourishing of models with microfoundations based on imperfect (or monopolistic) competition that claim to yield Keynesian results which, it is held, are incompatible with perfect competi-tion. The paper shows that Keynes’s results do not depend on market forms but are contingent on his treatment of investment. In Keynes’s analysis, the existence of underemployment equilibria is demonstrated regardless of the assumed market form. Far from taking into account the importance of investment, recent models with ‘Keynesian results’ ignore investment altogether.

The article argues that if the investment demand function, with its distinctive characteristics, is removed, involuntary unemployment can be explained only by imperfections or rigidities that prevent producers from pushing their supply up to the level of full employment. A conclusion that Keynes wanted to avoid.

The introduction of a hypothesis of market forms different from imperfect competition may be useful in order to develop macroeconomics along more realistic lines, however, as the conclusions of the paper suggest, this hypothesis loses its analytical power if made separately from a satisfactory treatment of investment.     

International fragmentation: Boon or bane for domestic employment?

In this paper, we introduce the fairness approach to efficiency wages into a standard model of international fragmentation. This gives us a theoretical framework in which wage inequality and unemployment rates are co-determined and therefore the public concern can be addressed that international fragmentation and outsourcing to low wage countries lead to domestic job-losses. We develop a novel diagrammatic tool to illustrate the main labour market effects of international fragmentation. We also explore how preferences for fair wages and the size of unemployment benefits govern the employment effects of outsourcing and critically assess the role of political intervention that aims to reduce unemployment benefits under internationally fragmented production.     

A Model of Employment in the Arts

The behaviour of artists appears to be influenced by non-pecuniary benefits that lead to employment choices inconsistent with traditional expectations of labour supply theory. The paper develops a model of employment in the arts with similarities to the Harris-Todaro model. Seemingly paradoxical results arise. For example, the model illustrates how an increase in wage rates for non-artistic activity may lead to a reduction in the amount of non-artistic activity and a commensurate increase in the amount of time devoted to artistic endeavours. Additionally, the model illustrates how individual work preferences of artists can lead to substantial underemployment in the arts.