ECON2004Lecture16

ECON2004Lecture16 - Where we are r Lecture 16: Unemployment...

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Unformatted text preview: Where we are r Lecture 16: Unemployment rs Reading. Core: Nickell, Stephen, (1997) “Unemployment and Labor Market Rigidities: Europe versus North. America”. Journal of Economic Perspectives, Summer, Vol. 11, No 3, p55-74 y π Carlin and Soskice Ch 18, section 1,2 Optional: πT “Europe's scrap-heap”, The Economist, Aug 16th 2001 “A shocking error” , The Economist,Jun 3rd 1999 Advanced: Layard, Nickell and Jackman, “Unemployment” Ch 9 y ye ECON2004 Macro Term 1, Lecture 16: Unemployment 1 ECON2004 Macro Term 1, Lecture 16: Unemployment 2 Unemployment The labour force Population People of working age (1564) Young and old Participants • What determines the natural rate of unemployment? • Why does it seem to have risen in Europe? • Unemployed What can policy do to reduce unemployment? ECON2004 Macro Term 1, Lecture 16: Unemployment Employed UK, 2001: Level of unemployment Inflow Outflow 3 ECON2004 Macro Term 1, Lecture 16: Unemployment 4 Two models of the labour market Classical How to deal with high unemployment in Europe? WS/PS W/P W/P The Economist’s View (c1991) “The cause of the climb in Europe’s natural rate of unemployment is no mystery…. N N Or one? W/P • • • Generous welfare benefits High firing costs Powerful trade-unions and minimum wage laws … we must prune the welfare state” Nickell summarises this as follows: “Here is the received wisdom: The European labour market is rigid and inflexible. Result: high unemployment. The North American job market is dynamic and flexible. Result: low unemployment” N (see Carlin and Soskice Ch2 p52) ECON2004 Macro Term 1, Lecture 16: Unemployment 5 ECON2004 Macro Term 1, Lecture 16: Unemployment 6 Diversity in labour markets: unemployment rates ECON2004 Macro Term 1, Lecture 16: Unemployment Diversity in labour markets: employment rates 7 ECON2004 Macro Term 1, Lecture 16: Unemployment 8 Diversity in labour markets: features Diversity in labour markets: features Employment protection: “to protect employees from arbitrary, unfair or discriminatory action on the part of employers” Union density Proportion of trade union members in labour force Labour standards : Union coverage Legislation on working time; fixed term contracts; employment protection; minimum wages; employees representation Share of workers covered by union bargaining Active labour market policies: Training, assistance with job search; subsidized employment ECON2004 Macro Term 1, Lecture 16: Unemployment 9 ECON2004 Macro Term 1, Lecture 16: Unemployment 10 “…it is important to know which features of the labour market generate unemployment and which do not” Nickell’s conclusions High unemployment is associated with the following labour market features: 1. Generous unemployment benefits that are allowed to run on indefinitely, combined with little or no pressure on the unemployed to obtain work, and low levels of intervention to increase the ability and willingness of the unemployed to work 2. High unionisation… and no coordination between unions and employers in wage bargaining NB coefficient is statistically different from zero at a 5% level if coefficient / standard error > 2.5 3. High overall taxes Labour market rigidities that do not appear to have serious implications for… unemployment are the following 1. Strict employment protection legislation 2. Generous levels of unemployment benefit, so long as these are accompanied by pressure on the unemployed to take jobs ECON2004 Macro Term 1, Lecture 16: Unemployment 11 ECON2004 Macro Term 1, Lecture 16: Unemployment 12 ...
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This note was uploaded on 05/25/2011 for the course ECON 2004 taught by Professor L during the Spring '11 term at UCL.

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