Schumpeter on unemployment

Joseph Alois Schumpeter’s approach to the phenomenon of unemployment differs strongly from the traditional classification with its strict distinctions between frictional, cyclical and structural unemployment. By relating these three categories to his theory of creative destruction, Schumpeter collapsed them all into one: technological unemployment. In our paper, we provide a systematic overview and discussion of Schumpeter’s varied writings on unemployment, from 1908 to 1954. We compare his view with the positions of some of his contemporaries, such as Wicksell, Hicks, Beveridge and Keynes. Finally, we discuss to what extent recent writers, such as Aghion, Howitt and Caballero, have integrated Schumpeter’s approach into modern macroeconomics.     

Lucas on involuntary unemployment

The aim of this paper is to examine critically Lucas' argumentsagainst Keynes's General Theory and in particular against Keynes'sconcept of involuntary unemployment. It comprises two main parts.In the first part of the paper, the author questions Lucas'sclaim that Keynes betrayed the equilibrium discipline by freeinghimself from the postulates of optimising behaviour and marketclearing. In the second part, Lucas’ three arguments againstthe involuntary unemployment concept are discussed—first,that there is no rationale for drawing a distinction betweentwo sorts of unemployment; second, that every economic outcomefeatures the voluntary and the involuntary jointly; and third,that alternatives to unemployment are always present.     

The social costs of unemployment: accounting for unemployment duration

This article contributes to the literature on unemployment and well-being by investigating the linkage between personal life satisfaction and a macroeconomic indicator of the duration of unemployment. Using data for more than 50?000 individuals in 10 European countries, 1992–2002, we find that the social costs of unemployment, in terms of general unemployment's impact on life satisfaction, relate significantly and to a considerable extent to unemployment duration. It is thus not just the risk of becoming or staying unemployed that people worry about, but especially the prospect of staying long-term unemployed. This fear affects employed and unemployed people alike. Our findings provide a strong point for focusing labour market policies on long-term unemployment, in addition to considerations of human capital depreciation.     

Comment: Lucas on involuntary unemployment

Keynes distinguishes three concepts: voluntary, frictional and(Keynesian) involuntary unemployment. Frictional unemploymentis a Classical form of involuntary unemployment (not voluntary,as Lucas suggests), and reflects the Marshallian, rather thanWalrasian, treatment of time and equilibrium. Lucas contradictsboth Keynes and Pigou in asserting that there are always immediatevacancies for unskilled labour, and abstracts from the veryproblem that Keynes seeks to address. If voluntary unemploymentis re-defined appropriately, as De Vroey helpfully suggestselsewhere, the prefix ‘involuntary’ is dispensable,not because all unemployment is voluntary, as Lucas would haveit, but because it is all involuntary.     

Nonparametric estimation of a dependent competing risks model for unemployment durations

In this paper we simultaneously analyze transitions from unemployment to employment and to nonparticipation. We estimate a dependent competing risks model with nonparametric specifications of the destination-specific duration dependence and unobserved heterogeneity terms, allowing for mutual dependence of the unobserved heterogeneity terms. We use an administrative data set covering all registered French unemployed over the period 1988–1994, stratified by gender type, duration class and exit state. We thank the Editor and three anonymous referees for their useful comments. A preliminary version of this paper was distributed under the title “Individual variation in exit rates from unemployment: a nonparametric multivariate analysis using aggregate data”. The Département de Marché du Travail of the Ministère du Travail, de l’Emploi et de la Formation Professionelle of France kindly provided the data.     

The nature of regional unemployment in Italy

Taking as a starting point the evidence of growing disparities for most of the 1984–2007 period, this article investigates the nature of regional unemployment in Italy. In particular, we assess whether the Italian regional unemployment rates contain a unit root and are, thus, subject to pure hysteresis, considering as alternative hypotheses both a linear and a non-linear stationary process. For that purpose, we employ three recently developed panel unit-root tests, taking account of structural breaks, cross-section dependence and non-linearities. Contrary to previous studies in the literature, our results reject the pure hysteresis hypothesis and support the characterisation of regional unemployment in Italy as a stationary but non-linear process, subject to multiple equilibria, in line with the ‘structuralist hypothesis’ advanced by Phelps (1994).     

Jobs specialization versus unemployment: more on the productivity effect of unemployment benefits

We use the Marimon and Zilibotti (Econ J 109: 266–291, 1999) circle model and we endogenize the choice of the degree of specialization of jobs. We show that an increase in unemployment benefits not only reduces the mismatch of talents (as in Marimon and Zilibotti), but it also raises the degree of specialization of jobs. This reinforces the productivity enhancing effects of unemployment benefits.      

Are institutional rigidities at the root of European unemployment?

The Netherlands experienced employment growth higher than thatin the US and achieved an unemployment rate of less than 3%,but Germany's unemployment rate remained at high levels. A widelyheld view regards a distorted incentive structure in welfarestates as the ‘root of the European unemployment problem’,but welfare state institutions in the Netherlands are more generousthan the German ones. Therefore, differences in the incentivestructures between the two economies cannot explain the differencesin employment success. The reasons for this seem instead tobe rooted in coordinated monetary, wage and fiscal policiesin the Netherlands while these are incompatible policies inGermany.     

Persistent unemployment and co-ordination issues: an evolutionary perspective

Abstract. In this paper we look at unemployment as a phenomenon which reflects the co-ordination problems that characterize out-of-equilibrium processes of adjustment. The analysis carried out shifts the focus from structural factors to the economic process. It shows that unemployment cannot be satisfactorily explained – and policy interventions devised – by focusing only on specific characters of the technology or confining the analysis to structural factors concerning the labour market. The co-ordination mechanisms of adjustment processes rather than the fundamentals of the economy appear, in this light, as the main determinants of differences in unemployment trends in different economies; and monetary policy comes back to the center of the stage as an essential element of the working of these mechanisms. RID="*" ID="*" We thank anonymous referees for their very useful comments, and Elena Lega for the helpful support to the simulation analysis carried out. Correspondence to: J.-L. Gaffard     

Creation of jobs and firm-sponsored training in a matching model of unemployment

We offer a search and matching model with firms that create job vacancies and are willing to sponsor general skills training. The spillover of skilled labor between firms has the dual effect of increasing job vacancies and enhancing firms’ incentives for free riding. The former effect is combined with a reduction in search costs to cause a positive feedback between the supply of skilled labor and the creation of job vacancies, suggesting that firms encourage each other. On the other hand, with the latter effect, search costs are reduced, inducing firms to take a free ride on each other’s investments, thereby decreasing the supply of skilled labor and the creation of job vacancies. A reduction in search costs can lead to different results depending on which of the two mechanisms is actualized. Additionally, our analysis allows for “labor poachers,” or firms absorbing skilled labor in the market, to consider direct competition between training firms and poaching firms.      

Regional unemployment and norm-induced effects on life satisfaction

While rising unemployment generally reduces people’s happiness, researchers argue that there is a compensating social-norm effect for the unemployed individual, who might suffer less when it is more common to be unemployed. This empirical study rejects this thesis for German panel data, however, and finds that individual unemployment is even more hurtful when regional unemployment is higher. On the other hand, an extended model that separately considers individuals who feel stigmatised from living off public funds yields strong evidence that this group of people does in fact suffer less when the normative pressure to earn one’s own living is lower. A comprehensive discussion reconciles these findings with the existing research and concludes that to find evidence for the often described social-norm effect it is worthwhile to analyse disutility associated with benefit receipts.     

A Schumpeterian model of equilibrium unemployment and labor turnover

This paper constructs a general equilibrium model of equilibrium unemployment by combining an endogenous growth model with a variant of equilibrium search theory. The analysis offers two explanations for the causes of widening wage gap between skilled and less-skilled labor, and rising unemployment rate among the less skilled: technological change in the form of an increase in the size of innovations or skilled labor saving technological change in R&D activity. In addition, the model identifies two distinct effects of faster technological progress on the aggregate unemployment rate. First, it increases the rate of labor turnover and therefore increases the aggregate unemployment rate – the creative destruction effect. Second, it creates R&D jobs, which offer workers complete job security, and consequently reduces the aggregate unemployment rate – the resource reallocation effect.     

New Labour at work: long-term unemployment and the geography of opportunity

New Labour has placed great faith in active labour market policiesto address problems of long-term unemployment and poverty. Thispaper considers the effectiveness of welfare-to-work programmesin light of persistent regional employment disparities withinthe UK. It is argued that the government has proceeded froma flawed analysis of the causes and magnitude of long-term unemployment,framing the issue in terms of ‘worklessness’ andneglecting demand-side concerns of job availability and jobquality.     

Subjective well‐being and aggregate unemployment: further evidence

According to the literature, individual well‐being is negatively related to aggregate unemployment. This study examines whether the distribution of aggregate unemployment by duration affects well‐being, in addition to the level of unemployment. Different explanations are provided to indicate how the shares of short‐term (up to 3 months) and long‐term (more than 1 year) unemployed people could affect the well‐being of the employed and unemployed. Using data from almost 300,000 individuals from 11 EU countries, we find significant effects of both shares on life satisfaction. Among the unemployed, for example, we find a U‐shaped effect of the distribution of aggregate unemployment by duration on subjective well‐being, which compensates to some extent for the negative effect of the unemployment rate.     

Keynes, Lucas and involuntary unemployment: a reply to Hayes

In this response to Mark Hayes's criticism of his article, ‘Lucason involuntary unemployment’, the author insists on theneed to draw a distinction between labour rationing (a marketoutcome) and unemployment (the activity of job seeking). Economictheory is mainly concerned with the former. Yet the issue ofthe voluntarity versus the involuntarity of unemployment pertainsto unemployment as an activity. Failing to make this distinctioncannot but lead to semantic confusion.     

探析实现“民富国强”的路径选择

近年来中国GDP总量已经跃升为世界第二大经济体,国力之强盛毋庸置疑。然而,多年来城乡居民收入增长速度跑不赢国家财政收入的增长速度,收入分配不公平引发社会不断扩大的贫富两极分,出现了国强民不富的扭曲效应。因初次分配结构不合理、公共财政发挥的资源配置与收入分配调节效率低下、社会保障及收入分配制度不完善等因素,导致中国经济增长的模式被锁定在一种极不平衡的状态中。为此,探析并选择民富的路径,实现现阶段中国从国强转向民富的发展战略尤为重要。     

A coalitional theory of unemployment insurance and employment protection

This paper examines the role of coalition formation in the empirically observed negative correlation between employment protection and unemployment benefit. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria belonging to the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.     

Charles Kingsley and the Theological Interpretation of Natural Selection

Synopsis This paper questions the common view that Darwinian biology is a straighforward extension of classical political economy. Our analysis contrasts the economists’ classification scheme – whereby all humans were presumed natural kinds, to be equally competent for economic and political decision making – with the post-Darwinian classification scheme that developed. When the tools of political economy were imported into biology, the presumption of homogeneity of competence was denied. Charles Kingsley played a significant role in the transition from one sort of classificatory scheme to another, in the overthrow of the economists’ notion that humans are the same in their capacity for trade and moral judgment. Darwin sent Kingsley a presentation copy of Origin of Species and quoted him in the second edition as the ‘celebrated author and divine’ who had sketched a theology in which Providence used natural selection in the creation process. The economists’ doctrine that all people form a natural kind had many opponents. Biologists agreed with economists that, whatever differences existed between races of people, none put a person outside the protection of law. Other opponents, e.g., Thomas Carlyle, criticized both the economists’ premise and their conclusion regarding protection under the law. Kingsley moved from a Carlylean to a Darwinian opposition to natural kinds.     

Schumpeter and the revival of evolutionary economics: an appraisal of the literature

During the last two decades we have seen a revival of interest in the works of Joseph Schumpeter and “evolutionary” ideas in economics more generally. A professional society honouring Schumpeter's name has been founded, and linked to it we have had for more than fifteen years now a professional journal devoted to this stream of thought. However, it has been argued that, despite these developments, the link between Schumpeter's own work and the more recent contributions to evolutionary economics is in fact rather weak. This paper considers this claim. Based on an analysis of Schumpeter's contribution to economics the paper presents an overview and assessment of the more recent literature in this area. It is argued that although there are important differences between Schumpeter's work and some of the more recent contributions, there nevertheless remains a strong common core that clearly distinguishes the evolutionary stream from other approaches (such as, for instance, so-called “new growth theory”). RID="*" ID="*" Many people have contributed to this paper in various ways. Jon Hekland at the Norwegian Research Council started it all by asking me to make an overview of the contribution from “evolutionary economics” to our understanding of contemporary economies. Several people helped me on the way by supplying written material, comments and suggestions, and I am indebted to all of them. Brian Arthur, Stan Metcalfe, Keith Pavitt, Erik Reinert, Paolo Saviotti and Bart Verspagen may be particularly mentioned. A preliminary version was presented at the conference “Industrial R&D and Innovation Policy Learning – Evolutionary Perspectives and New Methods for Impact Assessment” organised by the Norwegian Research Council (“SAKI”) at Leangkollen, Asker, April 18–19.2002. I wish to thank the discussant, Tor Jakob Klette, and the participants at the conference for useful feedback. Moreover I have benefited from comments and suggestions from the editors and referees of this journal. The final responsibility is mine, however. Economic support from the Norwegian Research Council (“SAKI”) is gratefully acknowledged.