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.     

Occupational Change and Mobility Among Employed and Unemployed Job Seekers

We use data from the Labour Force Survey to show that employed and unemployed job seekers in Great Britain originate from different occupations and find jobs in different occupations. We find substantial differences in occupational mobility between job seekers: employed job seekers are most likely to move to occupations paying higher average wages relative to their previous occupation, while unemployed job seekers are most likely to move to lower paying occupations. Employed and unemployed job seekers exhibit different patterns of occupational mobility and, therefore, do not accept the same types of jobs.     

The Youth Labour Market in Australia*

This paper uses unit record data from the 1985 Australian Longitudinal Survey to review the major features of the youth labour market. It is shown that education plays an important role in determining the incidence of unemployment, wages, hours of work and access to training opportunities. Analyses of labour market dynamics indicates that the probability of leaving unemployment falls off substantially as the duration of the unemployment spell increases. A major conclusion of the paper is that the longer term unemployed appear to be segmented from other labour market participants. An implication of this finding is that there b very little which the longer term unemployed can do at the margin to influence their success other than adopt the most productive method of job search.     

Explaining ethnic unemployment and activity rates: evidence from the QLFS in the 1990s and 2000s

This article uses data from the Quarterly Labour Force Survey for 1992–95 and 2000–03 to examine changes in ethnic unemployment and economic activity. The intention was to compare the relatively high unemployment era of the 1990s with the lower unemployment era of the 2000s. Although the ethnic minority unemployment situation has improved, only half of the difference between white and non‐white unemployment can be attributed to differences in observed characteristics. This suggests that a large unexplained discriminatory element still exists for most ethnic minorities. This has become larger for Pakistani/Bangladeshi men, implying a widening of the unexplained ethnic differential.     

Image and Reality in Economic Development

Since the financial meltdown of 2007, unemployment has consistently been above 6.0 percent. On one level, long-term unemployment can be accounted for by structural changes. But, on another level, the problem of long-term unemployment is really no more complicated than the absence of effective demand. This study looks at the demographics of the long-term unemployed for the years 2007-2010, and compares them to the years 1991-1994 to see what changes have occurred specifically among the long-term unemployed. The data shows that, in terms of structural changes, the 1991-1994 and 2007-2010 periods were not much different. Rather, the nature of this recession resulted in an altered composition of the long-term unemployed. Because long-term unemployment in this recession is a function of a particularly deep recession, a new approach is needed. Based on the data, this study argues for a wage policy that would allow for people to increase their effective demand for goods and services.     

A Note on Estimating Unemployment Duration

A focal point of a number of recent studies of unemployment duration has been the estimation of the unobserved average completed duration (ACD) of an unemployment spell using groped data on observed incomplete spells. Both parametric and non-parametric methods are available. This note compares the assumptions underlying the two approaches and argues for the use of a non-parametric estimator, specifically the Kaplan-Meier estimator, on grounds of its use of the weaker assumptions. In an actual application of the Kaplan-Meier estimator to some data from the Australian Labour Force Survey a Number of problems are experienced due to the fact that the estimator is intended for data in a life table format. The note briefly discusses the resolution of these problems and related statistical issues.     

HAPPY PEOPLE ARE LESS LIKELY TO BE UNEMPLOYED: PSYCHOLOGICAL EVIDENCE FROM PANEL DATA

There is a large literature showing that unemployment reduces people's well‐being. Yet little is known about the reverse possibility, namely that well‐being itself may influence unemployment propensity. Understanding the potentials of human well‐being in relation to unemployment is important as many developed countries are currently facing high unemployment rates. As well‐being is likely to be endogenous, we use British panel data and implement Lewbel's novel empirical approach for identification. We show that higher well‐being implies a negative causal effect on the probability of being unemployed. The result holds for two very different well‐being measures: life satisfaction and a 12‐item scale of mental health. As such, it provides new empirical evidence on the causal link between well‐being and unemployment propensity. (JEL D03, I31)     

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.     

The impact of local unemployment rates on reservation wages and the duration of search for a job.

Evidence about the relationship of local unemployment rates and individuals' reservation wages and duration of search for a job if unemployed is sparse and mixed. This study uses US data from the Panel Study of Income Dynamics (PSID) to test whether relatively high local unemployment rates reduce the reservation wages of area residents or increase the duration of search. Labour search theory provides the grounding for the sample selection corrected simultaneous equations econometric model. In neither OLS nor 2SLS results is evidence found that local unemployment rates affect either reservation wages or the duration of search. These results suggest that policies targeted at alleviating unemployment should focus on increasing the demand for labour rather than hope that such policies will be beneficial if pursued in high-unemployment areas because of their effects on labour force characteristics.     

The unemployment experience of male immigrants in England

In this paper the unemployment experience of immigrant men in the English labour market is examined, using 1993–1994 data from the Quarterly Labour Force Survey of the United Kingdom. Hypotheses proposed by Chiswick (1982) are investigated, for both the claimant count and the ILO measures of unemployment, using logistic regression analysis. Our results show that recent white and nonwhite immigrant men experience much higher levels of unemployment than earlier cohorts. For whites, this effect is transitory, whereas for nonwhites unemployment rates adjust more slowly as the duration of stay increases. Immigrant unemployment rates also vary considerably with country of birth.     

Unemployment Durations in West Germany Before and After the Reform of the Unemployment Compensation System during the 1980s

Abstract. This paper analyzes empirically the distribution of unemployment durations in West Germany during the 1980s and 1990s. It therefore covers periods before and after the changes during the mid‐1980s in the maximum entitlement periods for unemployment benefits for older unemployed. The analysis is based on the IAB employment subsample containing administrative data for about 500,000 individuals. Since these data only partly reveal the unemployment duration in an economic sense, we use a narrow and a wide proxy for unemployment. Our empirical analysis finds significant changes in the distribution of non‐employment durations for older unemployed. At the same time, the distribution of unemployment durations between jobs remained unchanged after the reforms. Our findings clearly show that many firms and workers used the more beneficial laws as a part of early retirement packages. Surprisingly, for those workers who found and accepted a new job, we do not observe a prolongation of their search periods to a sizeable extent.     

Unemployment dispersion and the allocative efficiency of the labor market

An idea that seems to gain recurrent popularity in the economics profession is that, because of technological change, changes in consumer demand, skill mismatches, and the like, the unemployed tend to become concentrated or trapped in particular geographic areas and that for these reasons unemployment rates have grown more disparate over time. This paper examines the theoretical conditions necessary for the above argument to hold and shows that such conditions are not consistent with the notion of a competitive labor market. The paper then examines various measures of unemployment-rate dispersion in order to determine whether or not unemployment rates have indeed drifted further apart over time. The empirical evidence presented indicates unequivocally that geographic unemployment rates are neither more nor less dispersed now than they were twenty years ago. The results, therefore, suggest that the competitive view of the labor market is appropriate and that the hypothesis that unemployment rates have become more dispersed over time because of structural imperfections in the labor market should be rejected.     

Work incentive and other effects of social assistance and unemployment benefit policy in the Czech Republic

In this paper we provide an account of most of the passive labor market policies (unemployment compensation, social assistance, state social support and the pension system) in the Czech Republic during the 1990–1996 period. The eligibility requirements and benefit levels are described in great detail. Using Labor Force Survey data, we compare the characteristics of unemployed people receiving unemployment benefits with those receiving social assistance and those not receiving any benefits and we find significant differences in their characteristics. Finally, we provide an analysis of the work disincentive effects of the unemployment and social assistance benefits by comparing these benefits to market wages and by analyzing the effect of being in the system on the duration of unemployment of two cohorts of unemployed in 1994 and 1995. We find that social assistance benefits are fairly generous for low income families with more children, individuals with these characteristics have a higher probability of receiving social assistance and they tend to stay unemployed longer than those people with relatively fewer dependants. We conclude that the social assistance scheme seems to be having some disincentive effects for at least one group in the population.     

OPTIMAL UNEMPLOYMENT INSURANCE,WITH HUMAN CAPITAL DEPRECIATION,AND DURATION DEPENDENCE*

This article introduces the possibility of a deterioration in job opportunities during unemployment into the standard optimal unemployment insurance (UI) design framework and characterizes the efficient UI scheme. The optimal program may display two novel features, which cannot be present in stationary models. First, UI transfers are bounded below by a minimal assistance level that arises endogenously in the efficient contract. Second, the optimal scheme implies a wage subsidy for long‐term unemployed workers. Numerical simulations based on the Spanish and U.S. economies suggest that both assistance transfers and wage subsidies should be part of the UI scheme in these countries.     

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.     

Youth labour market integration in Spain: Search time, job duration and skill mismatch

In recent years young workers in Spain have had great difficulties in finding and maintaining a job. Furthermore, the early histories of new entrants into the Spanish labour market has typically involved young workers accepting jobs for which the required level of education is lower that the attained level. Using the ad hoc module of the Labour Force Survey (2nd quarter, 2000), in this paper I analyse the transition from school to work for a sample of Spanish youths who left education for the first time after 1990. I allow the search period after completing education, the duration of the first significant job, and the probability of being over-educated in that job to be correlated in a system of simultaneous equations which is estimated by maximum likelihood. The results suggest that over-educated workers experience shorter durations in their first significant job. I do not find a direct effect of search time on employment duration. However, there are unobserved factors that increase the first unemployed job search period after completing education, and that also increase the subsequent employment duration.JEL Classification: C34, J64The data set has been provided by professor Alfonso Alba-Ramírez. I am also grateful to Juan José Dolado, Marcel Jansen, Ricardo Mora, José Ignacio Garía, Juan Francisco Jimeno and two anonymous referees for useful comments and suggestions. The usual disclaimer applies.     

Employed unemployed? On shadow employment in transition

Unregistered employment poses two types of challenges to the researchers: (1) reliably evaluating the wage differential between formally and informally employed and (2) accounting for the push and pull factors in general and the effects of business cycle in particular. We address the former with the use of propensity score matching and analyse the evolution of the estimated average compensations and the differentials with reference to GDP and unemployment fluctuations. Using 13 years of quarterly labour force survey data from Poland of de iure unemployed but de facto employed individuals we find, that in-the-shadow compensations tend to be higher and procyclical. We also find considerable distributional heterogeneity.     

Can labour market institutions explain high unemployment rates in the new EU member states?

This article studies the question whether labour market institutions can explain the large differences in unemployment rates in the new member states. It investigates several labour market institutions and concludes that they are on average no more rigid in the new member states than in the old ones. However, there is a lot of heterogeneity both in terms of institutions and unemployment rates. The impact of labour market institutions on performance is empirically examined for a panel of European countries. These results are used to assess to what extent labour market institutions are responsible for the diverse unemployment experiences in the new member states. Labour market institutions can explain only a small part of these differences. Other causes of unemployment seem to be more important.

The Role of Education vis-a-vis Job Experience in Explaining the Transitions to Employment in the Spanish Youth Labour Market

It is well known that young cohorts experience higher unemployment rates than their adult counterparts. However, it is less well known that more educated young cohorts may face higher unemployment rates than less educated ones. This seems to be the evidence in some OECD countries such as Spain and Italy. We use data on the Spanish labour market and estimate a duration model for young unemployed people. University graduates’ lack of job experience may explain this puzzling observation.     

Effectiveness of sequences of classroom training for welfare recipients: what works best in West Germany?

Sequences of active labour market programmes (ALMPs) may be part of an intensified activation strategy targeting hard-to-place unemployed individuals. Such sequences are very common among welfare recipients in Germany, but most studies only evaluate either single ALMPs or unemployed individuals’ first ALMP. I analyse the effects of different sequences of classroom training for West German men and women on different labour market outcomes. Using rich administrative data and a dynamic causal model, I can control for dynamic selection problems that occur during a sequence. The results show that two classroom trainings are more effective than two periods of welfare receipt in helping welfare recipients find regular employment, especially among West German women. Moreover, immediately assigning individuals to classroom training is more effective than waiting and assigning them to classroom training in the second period. However, in some cases, avoiding participation in multiple programmes is preferable.

Abbreviations: ALMP, active labour market programme; CIA, Conditional Independence Assumption; CSR, Common Support Requirement; DATET, dynamic average treatment effect on the treated; IEB, Integrated Employment Biographies; IPW, inverse probability weighting; LHG, UBII-Receipt History (Leistungshistorik Grundsicherung); MSB, mean standardized absolute bias; SUTVA, Stable Unit Treatment Value Assumption; UBII, unemployment benefit II; UBI, unemployment benefit I; WDCIA, Weak Dynamic Conditional Independence Assumption