Labour Market Policies and Long-term Unemployment in a Flow Model of the Australian Labour Market

This paper develops a general equilibrium job matching model, which is used to assess the impact of active labour market policies, reductions in unemployment benefits and reductions in worker bargaining power on long-term unemployment and other key macro variables. The model is calibrated using Australian data. Simulation experiments are conducted through impulse response analysis. The simulations suggest that active labour market programs (ALMPs) targeted at the long-term unemployed have a small net impact and produce adverse spillover effects on short-term unemployment. Reducing the level of unemployment benefits relative to wages and worker bargaining power have more substantial effects on total and long-term unemployment and none of the spillover effects of ALMPs.     

Central school exit exams and labor-market outcomes

Many countries use centralized exit exams as a governance devise of the school system. While abundant evidence suggests positive effects of central exams on achievement tests, previous research on university-bound students shows no effects on subsequent earnings. We suggest that labor-market effects may be more imminent for students leaving school directly for the labor market and, on rigid labor markets, for unemployment. Exploiting variation in exit-exam systems across German states, we find that central exams are indeed associated with higher earnings for students from the school type directly bound for the labor market, as well as with lower unemployment.     

Entrepreneurs,jobs, and trade

We propose a simple theory of endogenous firm productivity, unemployment, and top income inequality. High-talented individuals choose to become self-employed entrepreneurs and acquire more managerial (human) capital; whereas low-talented individuals become workers and face the prospect of equilibrium unemployment. In a two-country global economy, trade openness raises firm productivity, increases top income inequality, and may reduce welfare in the country exporting the good with lower relative labor-market frictions. Trade openness reduces firm productivity, lowers top income inequality, and necessarily raises welfare in the other country. The effect of trade on unemployment is ambiguous. Unilateral job-creating policies increase welfare in both countries. However, they reduce unemployment and raise top income inequality in the policy-active country; and reduce top income inequality while increasing unemployment in the policy-passive country.     

Search for a theory of organized crimes

Casual empirical observations reveal no systematic relationship between the overall crime rate and organized criminal activity. We develop a search-theoretic framework to study the interactions not only between formal labor and crime sectors but also between individual and organized crimes. In equilibrium, individual and organized criminals face different arrest risks, success rates, reward structures and outside options. We characterize agents' “occupational choices,” the gang's hierarchical structure and the responses of unemployment, crime rates and crime composition to changes in labor-market conditions and crime-deterrence policies. We further assess the effectiveness of arrest versus punishment policies in deterring individual and organized crimes.     

Credit,vacancies and unemployment fluctuations

Propagation in equilibrium models of search unemployment is altered when vacancy costs require some external financing on frictional credit markets. The easing of financing constraints during an expansion as firms accumulate net worth reduces the opportunity cost for resources allocated to job creation. The dynamics of market tightness are affected by (i) a cost channel, increasing the incentive to recruit for a given benefit from a new hire, and (ii) a wage channel, whereby firms' improved bargaining position limits the upward pressure of market tightness on wages. Agency related credit frictions endogenously generate persistence in the dynamics of labor-market tightness, and have a moderate endogenous effect on amplification.     

Flexicurity Labour Market Performance in Denmark

Unemployment is at a low and stable level in Denmark. This achievementis often attributed to the so-called flexicurity model combiningflexible hiring and firing rules for employers with income securityfor employees. Whatever virtues this model may have, a low andstable unemployment rate is not automatically among them sincethe basic flexicurity properties were also in place during the1970s and 1980s where high and persistent unemployment was prevalent.Labour market performance has changed due to a series of reformsduring the 1990s, the main thrust of which was a shift froma passive focus of labour market policies to a more active focuson job search and employment. The policy tightened eligibilityfor unemployment benefits and their duration as well as introducedworkfare elements into unemployment insurance and social policiesin general. Thereby, policy makers attempted to strengthen theincentive structure without taking resort to general benefitreductions. We argue that the workfare policies have playedan important role running primarily via motivation/threat andwage effects. However, active labour market policies are resourcedemanding, and although the workfare reforms have improved costeffectiveness, there is still an issue as to whether the resourcesgoing into active labour market policies are used efficiently.(JEL codes: J30, J40, J60, H53)     

Employment protection reform in search economies

The design of employment protection legislation (EPL) is of particular importance in the European debate on the contours of labor-market reform. In this article we appeal to an equilibrium unemployment model to investigate the virtues of EPL reform which reduces the red tape and legal costs associated with layoffs and introduces a U.S.-style experience-rating system, which we model as a combination of a layoff tax and a payroll subsidy. The reform considered shows that it is possible to improve the efficiency of employment protection policies without affecting the extent of worker protection on the labor market. These results are consistent with the conventional wisdom that experience rating is desirable, not only as an integral component of unemployment-compensation finance, as most studies acknowledge, but also as part and parcel of a virtuous EPL system.     

Policy Influences on Unemployment: the European Experience

This paper considers the implications of four kinds of labour market policies for the 1980s rise in European unemployment: unemployment compensation, active labour market policies, employment protection legislation and taxation. It finds evidence that all have played a role in the determination of unemployment and discusses the mechanisms involved, the extent of the influence of each and the lessons learned from this experience. One of the main findings is that there is a trade‐off between wage inequality and unemployment. Policy has played a role in determining how a country responded to the negative macroeconomic shocks of the 1980s but policy alone cannot explain the full rise in European unemployment and North American wage inequality.     

Fiscal Policy,Economic Integration and Unemployment

In this paper fiscal policy is examined for an open economy characterized by unemployment due to efficiency wages. We allow for capital and firm mobility in a model where the government chooses the level of wage, source-based capital and profit taxation. The taxing choices of governments are analyzed in scenarios which differ with respect to the constraints imposed on the set of available taxes and on the mobility of firms. As a general result, the welfare loss from labor market imperfections increases when tax bases become internationally mobile, which suggests an increasing relevance of domestic labor-market reforms when tax bases become global.     

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.     

Long-term unemployment, social assistance and labor market policies in Romania

Long-term unemployment in Romania has grown in both absolute and relative terms in the last few years, leading to increased expenditures, both absolutely and in relation to unemployment benefits, for the support allowance and social assistance programs and for pensions to labor force drop-outs. The paper uses a variety of data sources, including registration information, labor force surveys, and our own survey of registered unemployed (SRU) to describe these trends in the characteristics of Romanian unemployment and to examine differences across unemployment benefit (UB), short-term and long-term support allowance (SA) recipients. We employ the data to estimate the transition flow probability from the UB to the SA program; discuss the work incentives, income maintenance effects, and public costliness of the labor market and social insurance (including pension and disability) policies; and investigate the effects of the policies and of other characteristics of the unemployed and the areas where they live on the hazard for the escape rate from unemployment for UB and SA recipients separately.     

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 impact of large-scale asset purchases on the S&P 500 index,long-term interest rates and unemployment

After the bankruptcy of Lehman Brothers in September 2008 and the financial panic that ensued, the Federal Reserve moved rapidly to reduce the federal funds rate to .25%. It was quickly judged that additional measures were needed to stabilize the US economy. Beginning in December 2008, the Federal Reserve Bank initiated three rounds of unconventional monetary policies known as quantitative easing (QE). These policies were intended to reduce long-term interest rates when the short-term federal funds rates had reached the zero lower bound and could not become negative. It was argued that the lowering of longer-term interest rates would help the stock market and thus the wealth of consumers. This article carefully investigates three hypotheses: QE impacting long-term interest rates, QE impacting the stock market and QE impacting unemployment using a Markov regime switching methodology. We conclude that QE has contributed significantly to increases in the stock market but less significantly to long-term interest rate and unemployment.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

Renewable energy and unemployment: A general equilibrium analysis

Using a three-sector general equilibrium model, the impact of renewable electricity support policies on the rate of equilibrium unemployment is analyzed. In a simple two-factor version of the model, the paper shows analytically that renewable electricity support policies lead to an increase in the rate of unemployment. A numerical analysis is conducted with an expanded three-factor model. In this version, most scenarios analyzed also lead to an increase in equilibrium unemployment. However, the paper identifies conditions in which renewable energy support policies can decrease the rate of equilibrium unemployment. In particular, when the elasticity of substitution between capital and labor is low, when capital is not mobile internationally, and when the labor intensity of renewable generation is high relative to conventional generation, renewable electricity support policies may reduce the rate of equilibrium unemployment. The model is parameterized to represent the US economy, such that the magnitudes of quantities can be observed. Although there is some variation in the results depending on parameters, the findings suggest in general that reducing electricity sector emissions by 10% through renewable electricity support policies is likely to increase the equilibrium unemployment rate by about 0.1–0.3 percentage points.     

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.     

Social Distancing,Labor Market Outcomes,and Job Characteristics in the COVID-19 Pandemic

This study investigates the role of job characteristics on an individual’s decisions to follow social distancing policies, work, and apply for unemployment insurance in the United States during the COVID-19 pandemic. We use data that track millions of mobile devices and their daily movements across physical locations to measure whether the devices’ owners leave their homes, or work part-time or fulltime on a given day, and we also collect data on weekly unemployment insurance claims. We find that the presence of jobs with a high work-from-home capacity in a region increases the ability of people to follow social distancing policies and decreases their unemployment risk, whereas the presence of jobs with high physical proximity decreases the incidences of following social distancing policies and unemployment and increases the incidence of work during the pandemic. These heterogeneous responses based on local job characteristics persist even conditional on a broad set of demographic and socioeconomic variables.     

Labor-Market Search, Financial Market Integration, and the Fiscal Multiplier

We used a two-country optimizing "new-open-economy macroeconomics" model to analyze the implications of financial market integration for the fiscal multiplier. The fiscal multiplier measures the accumulated effect of fiscal policy on output. Our model features a labor-market friction in the form of labor-market search. The conventional wisdom derived from the basic textbook version of the classic Mundell–Fleming model has been that financial market integration diminishes the fiscal multiplier. We show that labor-market search implies that financial market integration should increase rather than decrease the fiscal multiplier.     

中国的就业问题及其对策

在未来的十几年,中国将面临严峻的总量性失业和结构性失业问题。总量性失业和结构性失业都会扩大城乡收入差距,不利于社会的安定团结和长期增长。结构性失业阻碍产业结构的升级和城乡二元经济结构的消除,从而不利于我国经济的长期增长。除了人口基数大之外,赶超战略是我国总量性失业和结构性失业的最主要原因。最后,本文提出了长期和短期的政策建议。     

Unemployed immigrants and voter sentiment in the welfare state

Adverse voter sentiment can arise when immigrants are unemployed and receive tax-financed income transfers. The explanation for unemployment however determines the consequences for the local population, and an efficiency-wage explanation for unemployment is consistent with mutual benefit to national workers and employers from the presence of unemployed immigrants receiving tax-financed income transfers. The mutual benefit requires credible labor-market disciplining through job offers to immigrants and willingness of immigrants to accept job offers. Acceptance of job offers results in displacement in employment of national workers by immigrants, which can compromise the effectiveness of efficiency wages as a counter to anti-immigrant voter sentiment in the welfare state.