The British youth labour market in crisis

The paper argues that the British youth labour market is in a crisis with employment falling, unemployment and long-term unemployment rising rapidly. In section one the paper reviews the evidence and, in particular, looks at alternative measures of unemployment duration. Section two discusses various explanations for the growth of youth unemployment and dismisses the view that it is due to the increase in relative wages of young people. It is argued that the youth labour market has several distinctive features that make it more sensitive to cyclical fluctuations. Section three takes a brief look at various policies to alleviate the problem. Section four concludes the paper stressing that a reflation of the economy is necessary to make a significant impact on youth unemployment.     

UNEMPLOYMENT AND THE PRODUCTIVITY SLOWDOWN: AN EFFCIENCY WAGE PERSPECTIVE

Many OECD economies suffered a productivity slowdown beginning in the early 1970s. However, the increase in unemployment that followed this slowdown was more pronounced in European economies relative to the USA. In this paper we present an efficiency wage model, which enables us to identify two basic channels through which the productivity slowdown can affect workers' effort incentives. Predictions of the model are consistent with the different trends in unemployment across countries over this period in the face of a similar slowdown in productivity. We also demonstrate how the link between growth and unemployment depends upon labour market institutions in such a way that we can reconcile the mixed empirical results observed in the literature.     

Flexibility and Growth

After two decades of theoretical discussion and application of labour policies aimed at flexibility, ever-spreading unemployment in Europe has compelled some official institutions to admit that the 'rigidity' of the labour market does not suffice to account for the different trends in employment displayed by Europe and the United States. In this paper, we focus on the role played by differentials in income growth. After briefly reviewing the explanations of European unemployment based on labour market rigidity and their respective weaknesses, we look at the relationship between growth and employment, concluding that there are grounds for maintaining that the causes of Europe's higher unemployment reside mainly in its lower rate of growth.We therefore investigate the reasons that may be responsible for a more stringent macroeconomic constraint on European growth.We conclude that if a lack of growth is at the root of European unemployment, then merely dismantling labour market institutions, and replacing them with a more flexible system of industrial relations, will not only fail to produce the expected results but may also have negative effects, in both the social and productive structure.     

Employment protection and productivity: evidence from firm-level panel data in Japan

Recent developments in the literature on Employment Protection Legislation (EPL) have revealed that changing the stringency of employment protection can lead to extensive consequences outside the labour market, by affecting firms’ production decisions or workers’ commitment levels. This article provides the first empirical evaluation of the comprehensive effect of restrictions on firing employees in Japan, by exploiting the variations in court decisions. We find that judgements lenient to workers significantly reduce firms’ total-factor productivity growth rate. The effect on capital is mixed and inconclusive, although we obtain modest evidence that an increase in firing costs induces a negative scale effect on capital inputs.     

Ageing shocks and short-run regional labour market dynamics in a spatial panel VAR approach

Using a flexible spatial panel VAR model for a small-scale labour market system, we investigate the dynamic interdependences between changes in the demographic structure and the labour market performance of a regional economy. With a particular focus on ageing shocks, we describe an increase in the share of elderly in regional population due to exogenous changes in the institutional context, such as pension reforms. The regional labour market implications of an ageing shock are then tested with regard to the effects on employment growth, unemployment and labour participation rate. Our results based on a sample of 71 Scandinavian regions point to negative regional labour market effects of an ageing shock implying a reduction in employment growth and a temporarily declining labour participation rate, while the unemployment rate increases. Importantly, spatial spillovers amplify these negative impacts through a marginalization of macro-regional labour markets. As a robustness check, we reverse the causal ordering and analyze the responses to a positive macroeconomic shock which initially increases employment growth. We find direct and spatially indirect adjustment patterns characterized by a reduction of the unemployment rate, an increase in the labour participation rate and a decrease in the share of elderly in the population.     

Managerial capital,occupational choice and inequality in a global economy

This study proposes a simple theory of trade with endogenous firm productivity, occupational choice and income inequality. Individuals with different managerial talent choose to become entrepreneurs or workers. Entrepreneurs enhance firm productivity by investing in managerial capital. The model generates three income classes: low‐income workers facing the prospect of unemployment, middle‐income entrepreneurs managing domestic firms and high‐income entrepreneurs managing global firms. Trade liberalization policies raise unemployment and improve welfare. A reduction in per‐unit trade costs raises top incomes and generates labour‐market polarization. A reduction in fixed exporting costs has an ambiguous effect on top incomes and personal income distribution. Policies reducing labour‐market frictions or the costs of managerial‐capital acquisition create more jobs and improve welfare. The income distributional effects of labour‐market policies depend on which policy is implemented.     

The NAIRU reconsidered: why labour market deregulation may raise unemployment

According to the mainstream theory of equilibrium unemployment, persistent unemployment is caused mainly by ‘excessive’ labour market regulation, whereas aggregate demand, capital accumulation and technological progress have no lasting effect on unemployment. We show that the mainstream non‐accelerating inflation rate of unemployment (NAIRU) model is a special case of a general model of equilibrium unemployment, in which aggregate demand, investment and endogenous technological progress do have long‐term effects. It follows that labour market deregulation does not necessarily reduce steady‐inflation unemployment. Theoretically, if the decline in real wage growth claims owing to deregulation is smaller than the ensuing decline in labour productivity growth and in the warranted real wage growth, then in that case steady‐inflation unemployment may increase. Empirical evidence for 20 Organisation for Economic Cooperation and Development (OECD) countries (1984–1997) indicates that the impact of labour market deregulation on OECD unemployment is zero, and possibly negative (causing a higher rate of unemployment).     

Structural booms

The paper proposes a new interpretation of long swings in economic activity. Instead of deviations from a trend growth path explained by misperceptions, long swings are seen as detours in the path itself provoked by rare and deep changes in expectations of future productivity. And such changes are approximately captured by swings in stock markets. In a large sample of OECD countries, the paper finds long-term historical relationships between share prices and employment or the rate of unemployment. The results suggest that the recent strength of a nation's stock markets and the responsiveness of employment are related to its institutions. In particular, corporatist institutions are likely to impede or obstruct entrepreneurs from taking advantage of expected productivity improvements. In contrast, a well-developed stock market – in addition to a young, well-educated labour force – may help both in the creation of profit opportunities as well as in enabling and emboldening firms to increase hiring.
— Edmund Phelps and Gylfi Zoega     

Realism and a Christian Perspective on Economics

This paper assesses recent neoclassical and radical contributions to the analysis of unemployment as a labour disciplinary device, in particular, those of Shapiro & Stiglitz and Bowles & Gintis. These authors share a common set of premises, notably on the conception of the effort decision, that present severe obstacles to the understanding of productivity constraints on full employment. The models of Shapiro & Stiglitz and Bowles & Gintis identify a specific 'asymptote problem' in which the achievement of full employment immediately triggers infinite (and hence unsustainable) wage increases. The premise that workers find work subjectively costly to perform effectively rules out the possibility for full employment. But this view fails to take into account the actual constitution of work motives. To the extent that work effort may be induced independently of dismissal threats, high work intensity may in fact be undermined by high unemployment. By taking work avoidance as given, the labour extraction literature forecloses consideration of the possibilities offered by alternative work organisation for removing unemployment as a worker disciplinary device.     

Modelling labour market dynamics with on-the-job search

A flow model of the Dutch labour market is used to calculate the effects of policy options which aim to enhance employment, especially at the lower end of the labour market. The model distinguishes between good and bad jobs, allows for endogenous wage formation and job creation, and describes the flows between these jobs so that job-to-job mobility and the vacancy chain is made endogenous. In the matching process employed job seekers with bad jobs compete with short-term and long-term unemployed for the filling of vacancies for good jobs. In each period part of the good and bad jobs are destroyed which results in inflow into unemployment. The model explicitly describes the flow of unemployed through the various duration classes of unemployment and it allows for negative duration dependence so that the escape probability from unemployment for long-term unemployed is smaller than for short-term unemployed. The model is used to simulate the effects of external shocks, such as structural productivity shocks. An impulse response analysis using the model is also conducted considering labour market policies which aims especially to enhance employment at the lower end of the labour market. In particular, the effects are analysed of measures subsidising the opening of bad jobs (jobs at the lower end of the labour market) and a rise in the productivity of a bad job as compared to a good job which can be achieved by changes in the tax system.     

The impact of minimum wages and foreign domestic workers in Taiwan

The purpose of setting the minimum wage is mainly to protect the rights and interests of vulnerable workers and to enhance productivity of labour. In this paper, an attempt has been made to explore the effect of the upwards adjustment of the minimum wage in Taiwan on the inflation rate, the unemployment rate, labour productivity, economic growth and other macroeconomic variables by means of an analysis of empirical data using a structural vector auto‐regressive model. The findings of the paper show that upwards adjustment of the minimum wage in Taiwan will not intensify the unemployment rate. On the contrary, it will help to promote labour productivity to an extent that will have a positive effect on the economic growth rate. In addition, this paper investigates, long‐term care system should incorporate the foreign domestic worker labour pool, which could provide the additional personnel necessary for the nation's long‐term care. Minimum wage should apply to foreign domestic workers, and foreign domestic workers should not be treated as a separate group of workers in minimum wage policy.     

The Beveridge curve and labour market dynamics in Turkey

This article investigates the dynamics of unemployment and vacancy rates in Turkey during the period 1951 to 2008 by means of a Beveridge Curve (BC). The time-series analysis of unemployment and vacancies as well as two other relevant labour market variables, real wages and real labour productivity, strongly suggests inefficiency in the Turkish labour market. A stable long-run relationship between unemployment rate and vacancy rate is found for Turkey, that is, the existence of a negatively sloped BC is verified. The estimated Turkish BC reflects the structural problems and lack of flexibility in the labour market. The modified BC with real wages and labour productivity reveals that labour productivity has no significant effect on unemployment rate whereas wages have positive and significant effects on the same variable.     

Unemployment and growth: some empirical evidence from structural time series models

This study investigates the empirical relationship between unemployment and growth in a number of OECD economies. A structural time series model is used for labour productivity growth to demonstrate that, in most economies, there seems to be a negative correlation between unemployment and labour productivity growth. The results provide little support for the theory that recessions may stimulate productivity growth. The use of a structural time series approach allows an attempt to model the underlying dynamics of productivity growth jointly with the effect of unemployment.     

就业保护与劳动力市场绩效——基于跨国面板数据的实证分析

本文采用世界经济自由度指数和世界银行的世界发展指标,选取2002-2008年面板数据对就业保护的理论假说和经验分析进行了相应的验证。实证结果表明,就业保护提高了失业率,女性和青年受就业保护制度的影响程度更大;就业保护子指标对失业率的影响与理论估计一致,但显著性较低。其中,雇佣/解雇管制越低,失业率越低;法定解雇成本越高,失业率越低;服兵役时间越长,失业率越高;最低工资、集体协商、工时管制与失业率之间没有显著关系。就业保护问题的研究有助于改进我国的劳动立法,改善女性、青年的就业机会,提高就业率,发挥法律的增进市场效率的作用,为完善劳动力市场的运行机制提供理论支持。     

How important is employment protection legislation for Foreign Direct Investment flows in Central and Eastern European countries?1

In this article we investigate empirically the importance of labour market conditions and in particular the role of employment protection legislation as determinants of bilateral Foreign Direct Investment (FDI). We find that FDI flows are significantly higher in countries with relatively low unit labour costs. We also find that employment protection legislation does not exert a statistically significant impact on FDI flows. Our results are consistent with the interpretation that transition economies attract FDI via low production costs whereas indirect costs related to the rigidity of the labour market are less relevant.     

Union growth in The Netherlands 1961–1989

An empirical analysis is presented of union growth in The Netherlands over the past decades. The analysis shows that the effect of changes in the industrial structure is very small. It appears that union growth is influenced by wage growth and by unemployment. If real wages increase more than labour productivity or if unemployment declines union membership increases.     

Does the public employment service affect search effort and outcomes?

In this paper, we examine the disincentive effects of the public employment service on the search effort of unemployed workers and on their exit rate from unemployment. For that purpose, we specify a structural search model with fixed and variable costs of search in which unemployed workers select their optimal search intensity given the exogenous arrival rate of job contacts coming from the public employment agency. Because the theoretical effect of an increase in this exogenous job contact arrival rate on the structural exit rate from unemployment is ambiguous, we estimate this model using individual unemployment duration data. Our results show that the exit rate from unemployment increases with the arrival rate of job contacts obtained by the public employment service, especially for low-educated and low-skilled workers. They also show that the search effort is more costly for low-educated women and low-skilled adult unemployed workers. This last result suggests that a public employment agency that matches searchers and employers is beneficial, in the sense that it saves searchers in terms of search costs they would otherwise bear.     

The Contribution of Employment Separation to Teenage Unemployment*

In this paper we analyze the relationship between labour market flows and the unemployment rate of teenagers compared to males aged 25–54 years. For 1979–80 teenagers separated from employment at approximately five times the rate of adult males and this was the principal factor associated with their high rate of unemployment. Job-finding success from unemployment and from outside the labour force is approximately the same for each labour market group. A special feature is the analysis of gross flows between full-time and part-time employment. Labour market flows involving part-time employment account for little of the unemployment rate difference.     

How should a government finance pension benefits?

Based on an earlier report by Ono (2010), this paper presents consideration of a consumption tax and examines how tax reform to maintain the neutrality of pension benefits affects the income growth rate and the employment rate. A decrease in the rate of worker contribution (labour income tax rate) with an increase in a consumption tax raises employment, but the effect on income growth is ambiguous. A decrease in the rate of firm contribution with an increase in the consumption tax decreases employment and facilitates income growth. Therefore, if the unemployment rate must be decreased, then pension reform with a decrease in the rate of worker contribution should be selected. The results derived through the study described in this paper are consistent with the empirical facts. Moreover, for these analyses, we assume the other production function and confirm the robustness of the obtained results.