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.     

Efficiency of labour use in the Swedish banking industry: a stochastic frontier approach

The purpose of this paper is to analyse the impact of the deregulation of the Swedish banking industry in the mid-1980s, and the consequent banking crisis, on productive efficiency and productivity growth in the industry. An unbalanced panel of Swedish banks is studied over the period, 1984 to 1995. A total of 1275 observations are analysed for 156 banks that were observed for between two and twelve years. We adopt a translog stochastic frontier model to estimate the labour-use requirements in terms of the variables, loans, deposits, guarantees, number of branches and total inventories, together with the year of observation. The inefficiency effects in the labour-use frontier are modelled in terms of the number of branches, total inventories, the type of bank and year of observation. The technical inefficiencies of labour use of Swedish banks were found to be significant, with mean inefficiencies per year estimated to be between about 8 and 15 per cent over the years of study. However, the confidence interval predictions for these inefficiencies were found to be quite wide. First version received: August 1998/Final version received: April 2000     

An Estimate of the Range of Equilibrium Rates of Unemployment for Australia

This paper estimates the range of equilibrium rates of unemployment for Australia. The estimation technique nests a unique equilibrium rate of unemployment as a special case. It is found for the period 1965–97 that a range of equilibria of at least 6.6 percentage points of unemployment exists in Australia. The lower limit of this range, which is the minimum rate of unemployment consistent with non-increasing inflation, was 2–3 per cent in the 1960s, jumped in the early 1970s and was about 5.6 per cent during the 1990s.     

Inflation, Unemployment and the NAIRU in Australia

In this paper we investigate the relationship between inflation and unemployment in Australia, post 1959. Our approach is based on identification of the time series components of the data. Evidence is found of significant correlations between the non-trend frequencies of inflation and unemployment and these correlations are exploited to estimate a simple forecasting model that does not suffer from the instability normally associated with the Phillips Curve. Estimates of the NAIRU are also provided and these range from as low as 2.3 per cent to as high as 9.2 per cent over this period, but these estimates are quite imprecise. Reasons for this imprecision are discussed.     

Displacement Effects of Active Labour Market Policy: The Youth Labour Market in Finland

In 1994 the number of workers participating in active labour market programmes in Finland was 299,000. On average there where 125,000 workers in these programmes at any one time, the average length of participation in a programme being about 5 months. In relation to the 2.5 million-strong Finnish labour force, these figures are proportionally large. In 1994 the total expenditure on unemployment amounted to 6.7 per cent of GNP of which the share spent on active labour market programmes was about 25 per cent. The study investigates the displacement effects of active labour market programmes in the youth labour market in Finland. The two age groups analysed are 15-19-year-olds and 20-24-year-olds. The results, based on a VAR analysis of quarterly data from the period 1981.1-1995.2, suggest that the displacement effects of job-creation programmes may be substantial. The study cannot, however, provide any robust estimates of the likely size of such displacement effects on youth employment in Finland. This revised version was published online in July 2006 with corrections to the Cover Date.     

The Impact of International Trade and Protection on Australian Manufacturing Employment

The labour market consequences of trade and protection have only recently come under the scrutiny of labour economists. This paper seeks to accomplish two things - to survey the recent research and to provide estimates of the effect that reductions in effective rates of assistance afforded to Australia's manufacturing industries have had on employment. Recent labour market developments reveal a downward trend in manufacturing employment levels. The declines appear to have been associated with lower levels of assistance. However, the estimates of the effect of lower levels of protection are generally small - about a one per cent reduction in employment for each ten per cent reduction in the effective rate of industry assistance. In addition, the manufacturing employment developments appear to be only weakly linked to real wage resistance. Overall, an overriding impression from the find ings presented in this paper is the strength of the structural adjustments ongoing in Australia     

Labour market institutions and wage setting: evidence for OECD countries

The main channel through which labour market institutions are supposed to work in affecting unemployment is through their effects on the key parameters of the wage curve. In particular, labour market institutions may have both a direct wage push (or level) effect, i.e. change the level of the real wage for any given level of the unemployment rate and productivity, and an indirect slope effect, i.e. change the responsiveness of the real wage to the unemployment rate. The question this article addresses is whether there is any evidence that these transmission mechanisms were at work in a group of 20 Organization for Economic Co-operation and Development (OECD) countries over the period 1960 to 1999. The analysis is accomplished in two steps. Pooled Mean Group (PMG) estimates of a wage equation including unemployment, productivity and a set of wage push institutions are first obtained, allowing only a subset of institutional coefficient to be homogeneous, while leaving the unemployment and other coefficients free to differ across countries. The country specific estimates of the unemployment coefficients are then used to investigate whether and to what extent cross-country heterogeneity in the estimated wage response to unemployment is related to institutional differences. The results support the existence of significant wage push effects of union density and benefit replacement rates, and of significant slope effects of benefit replacement rates, benefit duration and employment protection. A more generous unemployment benefit structure is found to lower the wage responsiveness to unemployment, while higher employment protection, contrary to what one expects, is found to enhance it. No significant level and slope effects are found for the tax wedge and bargaining coordination.     

AGGREGATE LABOUR MARKET DYNAMICS IN HONG KONG

I specify a simple search and matching model of the labour market and estimate it on unemployment and vacancy data for Hong Kong over the period 2000–2010 using Bayesian methods. The model fits the data remarkably well. The estimation shows that productivity shocks are the main driver of fluctuations in the labour market, with cyclical movements in the separation rate playing only a subordinate role. The parameter estimates are broadly consistent with those found in the literature. To replicate the volatility of unemployment and vacancies, the model estimates require a high replacement ratio and a low bargaining power for workers, in addition to two extraneous sources of uncertainty. The estimates are robust to a relaxation of the prior information and small changes in the underlying model specification, which suggests that the data are informative and that the model is well specified. Overall, the Hong Kong labour market can be characterized by having a low degree of churning in normal times, but rapid firings and hirings in recessions and expansions.     

Vacancies and Unemployment in Australia

This article examines the extent to which the Mortensen–Pissarides model of labour market search can quantitatively match business cycle fluctuations in Australia. With productivity and job‐separation‐rate shocks, the model fails to produce substantial volatility among unemployment or vacancies, a result similar to Shimer's (2005) findings for the United States. Examining a broader range of shocks significantly increases the magnitude of business cycle fluctuations, but still only explains roughly 25 per cent of labour market volatility. The implied volatility of wages in the model is similar to that in the data and hence excessive wage flexibility is unlikely to be central to the failure of the model as claimed in the literature.     

Labour market reform and the macroeconomic efficiency of the labour market in Australia

This paper assesses the effects of a decade and a half of labourmarket reform in Australia on labour market flexibility at themacroeconomic level. Increased labour market flexibility isinterpreted as reduced structural unemployment and enhancedefficiency of matching. We use shifts in the Beveridge Curveas a measure of changes in labour market efficiency (followingSolow, R., What is labour-market flexibility? What is it goodfor?, Keynes Lecture, British Academy, London, December, 1997).Time series analysis of unemployment, vacancies and other relevantvariables strongly suggests that changes in the efficiency oflabour market matching over the period reflect the cyclicaleffects of hysteresis rather than the effects of labour marketreform.     

The Economic Situation

Throughout the first nine months of 1976 the Australian economy has remained virtually stagnant, with output and employment increasing only marginally and unemployment rising also. With the government following a severely contractionary policy in an attempt to break inflation the economy seems poised for a further modest downturn in the next nine months so that a self-sustaining recovery from the current recession does not seem to be in prospect before the second half of 1977. On the basis of existing policies our forecasts indicate a rate of growth of real GDP of only about 1.0 per cent in 1976–77, implying a further significant rise in unemployment during the financial year. There have been some hopeful signs in recent months of a reduction in inflation — the consumer price index increases in the first three quarters of 1976 were modest and wage rate increases remain closely in line with the wage indexation guidelines — but three factors have emerged to cast doubt on whether this improving trend will continue. The first is the effect of the recent drought on prices of foodstuffs, particularly meat, and the second is the expected 1.5 to 2.0 per cent increase in the consumer price index as a result of the changes in the method of financing hospital and medical services. These two factors mean that the December quarter increase in the consumer price index may be more than 5 per cent, threatening a further stimulus to inflation in 1977. Thirdly, present government policies could easily lead to a breakdown of the wage indexation system and a return to some form of collective bargaining over wage rates. Assuming nevertheless, a de facto continuation of partial indexation in 1977, we expect increases in male award wages and male average earnings of about 13 per cent during 1977, these increases being similar to those during 1975 and 1976 but much below the increases of 36 per cent and 28 per cent respectively recorded during 1974. Our forecasts also indicate increases in the consumer price index of 14 per cent during 1976 and 11 per cent during 1977, following increases of 16.3 per cent and 14.0 per cent during 1974 and 1975 respectively. These forecasts indicate that the government's fiscal, monetary, exchange rate and wage policies are likely to come under heavy challenge early in 1977, and decisions taken at that time are likely to be major determinants of economic developments in Australia in the next few years. The Institute would again urge a shift to a co-operative package including full wage indexation, with cuts in indirect taxes and public sector charges to wind down inflation and expand the economy. On current indications, labour productivity will be no higher in 1976–77 than in 1973–74, because of the weakness of total output, so that the whole burden of wage increases in that three year period has fallen on unit costs of production. It is our belief that the twin problems of inflation and unemployment will only be defeated in Australia when both cuts in indirect or direct taxes and increases in productivity are applied to reducing inflation in the context of an orderly system of wage and price determination.     

JOHN MAYNARD KEYNES MEETS MILTON FRIEDMAN AND EDMOND PHELPS: THE RANGE VERSUS THE NATURAL RATE IN AUSTRALIA, 1965:4 TO 2003:3

In this paper we compare the estimates of the range model in Lye and McDonald (2005a) with estimates of a natural rate model. We find that the range model is superior to the natural rate model according to econometric criteria and economic plausibility. Our estimates of the range model suggest that a significantly lower rate of unemployment is obtainable at the current time by aggregate demand policy, indeed a rate of 3.1 per cent for 2003:3 compared with about 6.5 per cent for the natural rate model. Thus we conclude that basing macroeconomic policy on the natural rate model would underrate the possibilities for economic welfare in Australia.     

Efficiency and Equity in Funding for Government Schools in Australia

This study measures cost inefficiency for government school in New South Wales, Australia using a two‐stage data envelopment analysis (TSDEA) model and the inefficiency‐effects model (Battese & Coelli, 1995). The study found overall primary schools are 75 per cent and secondary schools are 89 per cent cost efficient. However, cost efficiency for primary schools has decreased and for secondary schools has increased marginally over the study period. The study found that social disadvantage in primary schools exerts a strong negative impact on students’ achievement scores causing inefficient use of available resources. For secondary schools no such conclusive relationship is observed.     

Unemployment,long-term employment relations and the determination of unit labour cost growth in US manufacturing industries

This paper examines the effect that unemployment and long-term employment relations exert on the determination of unit labour costs. The paper proceeds in three sections. Section one analyses the relationship between labour market conditions and unit labour costs by developping a simple model of a firm that relies upon dismissal threats to elicit work effort. The comparative static properties of this model suggest that a tightening of labour markets may result in an increase in unit labour costs. In addition, it is argued that the labour market disequilibrium that occurs at full employment levels of unemployment will likely result in an increase in the growth rate of unit labour costs. The second section of the paper reviews diverse theories of long-term employment relations (LTERs), each of which suggest that the presence of LTERs ought to reduce the effect that labour market conditions exert on unit labour costs. The third section of the paper presents empirical estimates of the effect unemployment and LTERs exert on unit labour costs. The central empirical findings can be briefly summarized. First, movements towards full employment increase the growth rate of wages, reduce the growth rate of labour productivity and increase the growth rate of unit labour costs. Secondly, where long-term employment relations are prevalent, the effect of unemployment on wage, labour productivity, and unit labour cost growth is diminished. The paper concludes by discussing the implications these findings have for effort regulation models and the macroeconomic foundations of microeconomic labour market structures     

The behaviour of unemployment and unfilled vacancies in Great Britain: a search-turnover View

Previous empirical estimates of the relationship between unemployment and unfilled vacancies in Great Britain have been obtained from a mis-specified model. In particular, past studies have attempted to estimate an equilibrium relation directly from observations which have in general been generated from disequilibrium states of the labour market. This paper presents and estimates a disequilibrium, job search-labour turnover model of the labour market, using quarterly British data, from which a static equilibrium ‘UV’ relationship can be derived. The empirical results suggest that there is no statistically significant equilibrium relationship between unemployment and vacancies in Great Britain. Consquently, the recent controversy over explanations for alleged for alleged shifts in this relationship may have been ‘much ado about nothing’.     

THE (IR)RELEVANCE OF THE NRU FOR POLICY MAKING: THE CASE OF DENMARK

We reconsider the central role of the natural rate of unemployment (NRU) in forming policy decisions. We show that the unemployment rate does not gravitate towards the NRU due to frictional growth, a phenomenon that encapsulates the interplay between lagged adjustment processes and growth in dynamic labour market systems. We choose Denmark as the focal point of our empirical analysis and find that the NRU explains only 33% of the unemployment variation, while frictional growth accounts for the remaining 67%. Therefore, our theoretical and empirical findings raise doubts as to whether the NRU should play such a key instrumental role in policy making.     

The Impact of Immigration on a Depressed Labour Market: The South Australian Experience*

This paper examines the impact of immigration on the relatively depressed labour market in South Australia during the 1976-81 inter-censal period. The findings indicate that recently arrived immigrants have experienced exceedingly high unemployment rates. However, this is consistent with the view that immigration generates additional job opportunities for Australian residents (except in the manufacturing industry and trades occupations), and that immigrants experience high unemployment rates specifically because they have been unable to compete a 'fair share' of jobs away from residents already entrenched in the labour market.     

The impact of immigration on a depressed labour market: the South Australian experience

"This paper examines the impact of immigration on the relatively depressed labour market in South Australia during the 1976-81 inter-censal period. The findings indicate that recently arrived immigrants have experienced exceedingly high unemployment rates. However, this is consistent with the view that immigration generates additional job opportunities for Australian residents (except in the manufacturing industry and trades occupations), and that immigrants experience high unemployment rates specifically because they have been unable to compete a 'fair share' of jobs away from residents already entrenched in the labour market."     

The Impact of Incomes Policy on Aggregate Wage Determination in Australia*

A model of aggregate wage determination for Australia is developed and used to examine the effects of incomes policies on the level of real wages. A theoretical model of wage determination which includes several channels of incomes policy effects is specified and estimated using aggregate data. The results provide strong evidence to support the view that during periods of certain incomes policies there have been important changes in behaviour in the Australian labour market. In particular, during the period of the Prices and Incomes Accord it is estimated that equilibrium real wages were over 5 per cent below what would have been expected from previous experience.     

Social security and economic performance in Portugal: after all that has been said and done how much has actually changed?

This paper provides an empirical estimate of the macroeconomic effects of the Portuguese pay-as-you-go social security system based on data for the period 1970?C2007 and on VAR estimates using GDP, the unit cost of labor, the unemployment rate, the savings rate and social security spending. The major findings are twofold. First, growing social security spending has had detrimental effects on all of the private sector variables under consideration suggesting the existence of sizable inefficiencies. Second, these inefficiencies persist despite the successive reforms that took place over the last two decades. These results highlight the need for structural reforms of the pay-as-you-go system thereby addressing the sources of these inefficiencies, regardless of whether or not the system is financially sustainable. Furthermore, any reforms designed to address sustainability concerns cannot ignore these inefficiencies or risk making them even worse and thereby hindering the quest for sustainability itself.