Richard Jackman

Regional migration in Britain: an analysis of gross flows using NHS Central Register data.

The hiring function represents the process whereby job seekers and vacancies are matched. Migration can be seen as a special case of hiring in which a job seeker in region I is matched to a job in region j. As a consequence, high unemployment regions will ceteris paribus experience larger out-migration flows.

Wage rigidity and unemployment in OECD countries

Real wage rigidity is often blamed for causing unemployment in the wake of adverse real shocks, like changes in productivity or the terms of trade. Likewise nominal wage rigidity is blamed for causing unemployment in the wake of adverse nominal shocks, like falls in nominal demand.1 However, there has been relatively little systematic discussion of how these concepts should be defined. Some authors (e.g. Sachs, 1979) have defined real wage rigidity as the opposite of nominal wage rigidity, with the US nominally rigid and Europe really rigid.2 The rigidity of European real wages has then been used to explain why Europe has experienced a greater increase in unemployment since 1973 than the US. But in this discussion real wage rigidity has not been measured in a way which would in fact predict how much unemployment would result from a given real shock. The discussion has focused on the degree of nominal inertia in the system. But the unemployment cost of real shocks does not depend primarily on the degree of nominal inertia but rather on the effect of unemployment in the Phillips curve.

Labour Market Policies and Unemployment in the OECD

The massive increase in unemployment throughout the OECD since the early 1970s has led governments in many countries to introduce, or to expand, labour market policies such as training schemes, employment subsidies, public works or schemes of counselling or assistance in job search. Such programmes have the objective of reducing unemployment by improving the workings of the labour market. This paper first briefly describes the types of programmes that have been introduced in many OECD countries in recent years. It then suggests a model of the labour market, based on the relationship of unemployment and vacancies (or Beveridge curve), within which the rise in unemployment can be analysed and the effects of policies and of institutions examined. Using the framework, we then identify the main factors causing shifts in unemployment and vacancy rates in 14 of the main OECD countries over the period 1970-88. Our main results are that while corporatism remains the institutional features with the biggest single impact in sustaining low unemployment rates, labour market policies also have a significant and well-defined effect on unemployment which appears large relative to the budgetary costs of the programmes.

Causes of the Current Stagflation

Since 1975 labour slack has been unusually high in the OECD countries, and yet inflation has not diminished. The less favourable mix of unemployment and rate of change of inflation (which we call stagflation) is explained by a fall in the feasible rate of growth of real wages unmatched by a reduction in the constant term in Phillips curve. To investigate this mechanism, conventional wage and price equations are estimated for 19 countries and then used for simulation. Stagflation has been caused in roughly equal amounts by rising relative import prices and by the fall in the rate of productivity growth. In the basic model the Phillips curve is assumed not to adapt to falls in feasible real wage growth, but in a final section an adaptive wage equation is estimated, which confirms that the process of adaptation is slow.

Mismatch: a framework for thought

The rise in European unemployment is often blamed on increased mismatch between labour supply and demand- either by age, skill or region. To investigate this, we first develop models to explain differences in unemployment rates - both where labour supply is given and where it responds through labour mobility. Evidence supporting the model is presented using regional data for Britain and the US. We then ask how the intersectoral dispersion in unemployment rates is related to the overall average unemployment rate. We conclude from our model that average unemployment increases with the variance of relative unemployment rates across groups. Since this variance is substantial, it explains a good part of total unemployment. But, since the variance has not risen for skill groups or regions, it cannot explain the overall rise in European unemployment. We then turn to policy. If labour supply is given, there is a strong case for taxes and subsidies to redirect demand to high unemployment groups. But if there is a perfect labour mobility (infinitely elastic supply across groups), then even with job rationing there is no efficiency case for intervention except where there are externalities. With partial labour mobility the conclusion lies in between. Given the positive externalities of training and possible congestion externalities of migration, there may be a case for subsidies to training and to unemployment in high-unemployment areas.

Labour market policy and the reallocation of labour across sectors

This paper investigates the extent of labour market reallocation across broad industrial sectors in the transition economies of Eastern Europe since 1989. It offers various measures of the magnitude of labour misallocation and of the speed and efficiency of reallocation during the first half of the 1980s. It compares the performance of the economies of Eastern Europe with one another and with two Southern European economies, Greece and Portugal, which have also been experiencing substantial economic change. Contrary to much a priori theorising, the paper finds no correlation between unemployment and the speed or effectiveness of labour market reallocation. The authors argue that the analysis in the paper strengthens the case for an active as against a passive approach to labour market policy. This paper was produced as part of the Emerging Markets Programme

The Slump in Europe: Reconstructing Open Economy Theory.

Part 1 The problem for analysis: magnitude of the slump existing explanations new directions plan of the book. Part 2 Stylized facts: exchange rate movements real interest rates user cost of capital wage shares mark-ups average product of labour investment relative price of capital goods (un)employment. Part 3 Orthodox theory: the standard propositions and qualifications the essential orthodox model. Part 4 Elements of a reconstructed theory: customer markets in the transmission of foreign shocks capital mechanisms in the transmission of real interest shocks real investment-good prices in the transmission of shocks the persistence of the slump in Europe - our supply-price view. Part 5 An examination of demand-side explanations: the fiscal austerity hypothesis the tight money hypothesis the hysteresis effect required by demand-side explanations. Part 6 Can Europe do it?.

European versus US unemployment: different responses to increased demand for skill?

According to Paul Krugman, “the European unemployment problem and the US inequality problem are two sides of the same coin”. In other words, both continents have had the same shift in demand towards skill; in the US relative wages have adjusted and in Europe not. The implication of this hypothesis is that in Europe the unemployment rate for the unskilled will have risen but the unemployment rate for the skilled will have fallen. In fact it has risen. To investigate the hypothesis more systematically we develop an internally consistent model which allocates the change in a country’s unemployment between that resulting from (a) shifts in relative demand for skill minus shifts in relative supply, (b) shifts in the relative intercepts of skilled and unskilled wage functions, (c) shifts in aggregate wage pressure. We show that the rise in British unemployment relative to the US since the 1970s is almost certainly due to shifts in aggregate wage pressure. Similarly for 5 other European countries the combination of (a) and (b) accounts for none of the increase in unemployment since the 1970s.

Profit-sharing in a unionised economy with imperfect competition

Abstract This paper sets up a simple model of a unionised economy and shows that the introduction of profit-sharing unambiguously reduces the unemployment rate. The result arises because unions are assumed to care about the employment of their members but cannot bargain over employment directly. Profit-sharing reduces the perceived cost, in terms of worker income foregone, of increasing employment in the firm. In the economy as a whole, the equilibrium unemployment rate falls.

Counterinflationary Policy in a Unionised Economy with Nonsynchronised Wage Setting

A model of the determination of wages and employment in a unionised economy with nonsynchronised wage setting is presented in this paper. It is shown that a monetary deflation can lead to prolonged unemployment even though the unions act rationally and with full information about the change in policy. The model generates a “statistical” Phillips curve in which the rate of change of money wages depends on the anticipated growth rate of the money supply and on “disequilibrium” unemployment. Conventional incomes policies are shown to have desirable social effects, but run counter to the perceived self-interest of the trade unions and are therefore likely to be resisted. Taxes on wage increases have desirable long-run effects, but do not appear able to reduce the transitional unemployment costs of monetary deflation.