Results for “unemployment” 676 found
Wassily Leontief and Larry Summers on technological unemployment
Here is a very interesting piece from 1983 (jstor), Population and Development Review, it is called “Technological Advance, Economic Growth, and the Distribution of Income,” here is one excerpt:
In populous, poor, less developed countries, technological unemployment has existed for a long time under the name of “disguised agricultural unemployment”; in Bangladesh, for instance, there are more people on the land than are needed to cultivate it on the basis of any available technology. Industrialization is counted upon by the governments of most of these countries to relieve the situation by providing — as it did in the past — much additional employment.
If I may put this into my own terminology, Leontief is suggesting that at some margins fixed proportions mean many agricultural laborers, or would-be laborers, are ZMP or zero marginal product.
Haven’t you ever wondered how some traditional economies can have unemployment rates which are so high? Those are “structural” problems, yes, but of what kind?
By the way, Brad DeLong cites Larry Summers on ZMP workers:
My friend and coauthor Larry Summers touched on this a year and a bit ago when he was here giving the Wildavski lecture. He was talking about the extraordinary decline in American labor force participation even among prime-aged males–that a surprisingly large chunk of our male population is now in the position where there is nothing that people can think of for them to do that is useful enough to cover the costs of making sure that they actually do it correctly, and don’t break the stuff and subtract value when they are supposed to be adding to it.
A new estimate of the importance of unemployment benefits
This is a new NBER paper from Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, Kurt Mitman, the abstract is here:
We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed — the micro effect — we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.
There is an ungated version of the paper here (pdf).
Unemployment and Business Cycles (and a rehabilitation of matching models)
That is a new and important paper by Christiano, Eichenbaum, and Trabandt which strengthens and rehabilitates matching models of the labor market. The abstract is this:
We develop and estimate a general equilibrium model that accounts for key business cycle properties of macroeconomic aggregates, including labor market variables. In sharp contrast to leading New Keynesian models, wages are not subject to exogenous nominal rigidities. Instead we derive wage inertia from our specification of how firms and workers interact when negotiating wages. Our model outperforms the standard Diamond-Mortensen-Pissarides model both statistically and in terms of the plausibility of the estimated structural parameter values. Our model also outperforms an estimated sticky wage model.
A few points:
1. This model overcomes the empirical problems with matching models stressed by Shimer (2005).
2. In this model the distinction between structural and cyclical unemployment is ill-defined. To insist that today’s unemployment is one rather than the other is to commit a category mistake.
3. This model very naturally handles the distinction between “sticky wages for workers who already have jobs” and the situation of workers who do not have a job at all. For most traditional sticky wage theories this is an embarrassment, as quite good theories of incumbent theories cannot be stretched easily to cover sticky reservation wages for the unemployed.
4. This model does not require that any openly available, good for both sides wage bargain is left sitting on the table.
5. In this model money has a positive effect on output and employment, but only by lowering real interest rates and inducing more consumer spending. It does not in general appear to be a large effect, but there is a real positive effect. You will note that the underlying parameters of the labor matching model are defined in real terms.
6. This model derives wage inertia and thus matches observed data on “stickiness,” noting that “stickiness” now seems to be a misleading word.
7. It would be a mistake to think that this model (or any) captures the entirety of the U.S. labor market. Yet if the model reflects a big chunk of our labor market, at the expense of the standard nominal wage stickiness model, that would have significant implications for how we think about monetary and fiscal policies.
8. Unlike in the Keynesian model, I believe in this model it is possible for effective stimulus policy to both improve employment and boost real wages (possibly small amounts). That is a very common claim (“let’s get some stimulus to boost wages”), yet few people making it realize how much it conflicts with their underlying Keynesian foundations. Perhaps this is a new way forward. Please note, however, that is my intuition based upon reading the paper and not a result which the authors have proven formally.
It is oddly fashionable in the economics blogosphere to insist that microfoundations do not matter or are not a worthy matter of study. Papers like this show that in fact they matter a great deal.
An (earlier?) ungated version of the paper is here.
The nature of current unemployment
Dylan Matthews writes:
…Short-term unemployment is actually lower than it was in 2007. Indeed, the percentage of the labor force that had been unemployed for five weeks or less didn’t grow all that much during the economic meltdown. What changed was what happened after or within those five weeks. In 2007, they typically ended with a job. In 2009 and 2010, they more often ended with another few weeks of unemployment. The result is that if you break down the unemployment rate by duration, the problem appears to be almost entirely about long-term unemployment…
There is more here, including a good picture.
Why are new unemployment claims so low?
Scott Sumner reports:
…the ratio of new [unemployment] claims to pop is roughly back to the boom levels of 1999-2000 and 2006-07. And yet the other indicators (total jobs, unemployment rate, etc), remain deeply depressed. I can think of two ways to interpret this data:
1. Casey Mulligan is right, we have lots of structural issues that are causing high unemployment right now. The job market’s not that bad, it’s just that lots of people don’t want to work at the wages being offered, or are frozen out by the 40% rise in minimum wages during the housing bust.
2. AD is still the main problem, but since 1975 there’s been a long term downward trend in the claims/pop ratio, for some mysterious reason. That trend would explain why (according to new claims) the labor market looked as good in 2006 as 2000, even though most people think it was not.
On this topic, here is a kebko post of interest; he argues that employment has more or less recovered, once we adjust for various obstacles.
Prisoner unemployment is rising in California
Prison labor, once best known for making license plates, has grown to 57 factories doing such work as modular building construction, toner cartridge recycling, shoemaking and juice packaging, according to its latest annual report. Convicts supply closed-captioning for television and transcribe movies into Braille…
Yet even with workers paid 35 to 95 cents an hour, business is off. Sales are exclusively to state and local governments, almost all under budget pressure. The biggest customer, the Corrections Department, has 43,000 fewer inmates since 2006, many shifted to county jails to ease crowding. Revenue slipped 18 percent to $173 million in the fiscal year that ended in June, from almost $210 million five years earlier.
“We are statutorily required to be self-sufficient,” said Eric Reslock, a spokesman for the California Prison Industry Authority. Some work programs have been scaled back and all are being reviewed, he said.
That is from James Nash of Bloomberg. Here is one specific report for Bakersfield.
You can see that the initial shock to this system is largely demand-side. Yet there is still a relevant supply-side reason why many of these laid-off workers remain unemployed.
Inflation and unemployment revisited, or where is the deflation?
Ryan Avent has a good blog post, and an associated column, and a post from two days ago, related to an issue I have been discussing, namely if the negative AD shock is so primary and so terrible why have we seen so much price stability and even some mild inflation? He covers so much ground it is hard to excerpt, so do read the whole thing, here is one summary bit:
The question is: if unemployment and disinflation typically go together, and if central banks effectively prevented disinflation, then why is there still so much unemployment?
I like what Ryan says but would stress some points which he does not relate. Here you will find Krugman and Martin Wolf on the same topic, again many good points but I don’t think they are addressing the crux of the problem.
The key problem is not how to reconcile observed rates of unemployment and inflation (although that is an interesting issue), rather the key problem is how to reconcile observed rates of inflation with repeated claims made about the relative importance of negative AD shocks as the initial sin. That’s the elephant in the room.
Again, wage stickiness might explain why “pressures for five percent deflation” might be translated into no more than “actual two percent deflation.” It will not explain why deflationary pressures are translated into say “1.6% price inflation.”
My take would be this. Let’s start with a simple AS-AD model and assume the AS and AD curves both shift back to the left. It’s then easy to get a fall in output and employment without much if any deflationary pressures.
There is no need for “did they forget how to make ice cubes?” jokes or “was the Great Depression caused by soup kitchens?” kind of unperceptive remarks. Two simple candidates for the AS shocks are increases in the risk premium and credit contraction; I would add TGS-related ideas as well.
For a bit more detail, consider a credit collapse, as we’ve been seeing for instance in Spain. Due to a evaluation of expectations about the future of Spain and the security of euros in Spanish banks, credit dries up and some small and medium-sized businesses go under or cannot expand. Sometimes the credit collapse is driven by deposit flight, other times by the need to recapitalize banks, other times by the greater riskiness of the real economy. A credit collapse is both a negative AD shock and a negative AS shock together.
After all this, you can toss in inflation targeting, if need be, to help explain why so many countries are in the 0-2 percent inflation range. But in any case the net deflationary pressures are not so strong in the first place.
Krugman, by the way, recently considered the view that both demand-side and supply-side forces might be at work, but his response is hardly an argument at all:
Oh, and one more thing: no, you can’t say “Well, there may be truth to both views”. Either the economy is supply-constrained or it’s demand-constrained. Of course even the most ardent demand-siders will admit that there are supply constraints in there somewhere, that if we had an economic boom we would, after some period of time, enter a regime where printing money is inflationary and government borrowing drive up interest rates. But not here, not now.
There is not much here, other than “Either the economy is supply-constrained or it’s demand-constrained.” But that’s oddly non-marginalist. The supply and demand sides interact like Marshallian scissors. It’s not that one or the other has to be some kind of immoveable wall, or vertical curve, beyond which the other cannot budge. A few seconds looking at shifts of AD and AS curves, as mentioned above, can establish this.
In sum, there is no big puzzle once we recognize that significant AD and AS shocks have been at work.
The composition of unemployment into short- and long-term
This is not new news, but Peter Coy frames it quite memorably:
The rate of short-term unemployment—six months or less—is almost back to normal. In January it was 4.9 percent of the labor force. That’s only 0.7 percentage point above its 2001-07 average. But the rate of long-term unemployment, 3 percent in January, is precisely triple its 2001-07 average, according to a Bloomberg Businessweek calculation based on Bureau of Labor Statistics data. (Those two rates—4.9 percent and 3 percent—add up to the overall unemployment rate of 7.9 percent.) A striking statistic: The long-term unemployed make up 38 percent of all workers without jobs, double the average share and just a few notches down from the 2010-11 peak of 45 percent.
That is another way to think about why rapid labor market improvement appears unlikely.
Structural theories of unemployment, vindicated as part of the puzzle
From the new AER, by Michael Elsby and Matthew Shapiro:
That the employment rate appears to respond to changes in trend growth is an enduring macroeconomic puzzle. This paper shows that, in the presence of a return to experience, a slowdown in productivity growth raises reservation wages, thereby lowering aggregate employment. The paper develops new evidence that shows this mechanism is important for explaining the growth-employment puzzle. The combined effects of changes in aggregate wage growth and returns to experience account for all the increase from 1968 to 2006 in nonemployment among lowskilled men and for approximately half the increase in nonemployment among all men.
You will find many weak structural theories criticized (at length) in the blogosphere, but the stronger versions hold up. This is very likely one reason why the labor market and output response in recent years has been so weak. It doesn’t require any stories about companies searching desperately for quality computer programmers, and so showing the generality of unemployment across professions or regions isn’t much of a response to the stronger structural theories.
How much structural unemployment was there during the Great Depression?
A few times recently Paul Krugman has raised the issue of structural unemployment in the Great Depression, so I thought I would offer a look at what has been written on the topic. Here is Richard J. Jensen, from a survey article:
Economists agree that Keynesian stimuli would not have helped structural or hard-core unemployment, only cyclical unemployment. As Table 1 suggests, about half of the unemployment was cyclical from 1931 through 1933; it was then that stimulus was needed and might have worked. By 1933, the appearance of a large, new, structural/hard-core element raised the natural level of unemployment from the 5 to 6 percent range to 12 to 15 percent. If a Keynesian stimulus had been tried and it had eliminated cyclical unemployment, the remaining unemployment still would have been io to 15 percent. Further fiscal or monetary stimuli would have resulted in inflation.
Later he moves directly to the key question:
…we need to discover how the war cured hard-core unemployment permanently. On the supply side, the growth of high schools and colleges, the postwar draft, and Social Security retirements removed young and old from the labor force. Wartime training and experience, in industry and in the military, made workers more productive, and upgraded skills so that the supply of unskilled labor was much smaller. In terms of efficiency wages, employers reshaped jobs to suit the skills and increase the productivity of available workers. They had to use men (and women) whom they would not have dreamed of hiring a few years before.
Personnel management became even more important. The number of industrial-relations staff rose from 2.5 per 1ooo employees in 1937 to 8.o in 1948. They were charged with improving productivity despite the extraordinary shortage of manpower, the high quit rates, the government-imposed wage freeze, and the new strength of labor unions. They dropped categorical restrictions against the poorly educated, the unemployed, women, the old, the handicapped, and sometimes, in spite of intense resistance, blacks. Recruitment of new workers became an art form, with sound trucks blaring in the streets beseeching people to come to work and earn big money. Jobs were restructured so that fewer skills were needed. Intensive in-shop and in-school training programs reached millions. Anyone with a modicum of skill was rapidly promoted, even to the status of foreman or instructor. The results further justified the use of efficiency-wage procedures, but this time efforts were made to find the right niches for workers who had been “hopelessly unemployable” in the 1930s.
In other words, the path out of high unemployment involved much more than a mere reflation of nominal values. (By the way, when it comes to terminology I might not use the phrase “structural unemployment,” but it also is not “simple cyclical unemployment.” I would say that in some circumstances the traditional distinction between cyclical and structural unemployment breaks down, but note that in terms of its parent literature this piece is using the terms properly, even if they sound somewhat off in a 2012 blogosphere context.)
In any case, history suggests that stimulus policy has to take some very specific forms to reach those “called cyclically unemployed by some, structurally unemployed by others” unemployed workers and that is the practical upshot.
Another practical upshot is that you still can believe in labor market hysteresis, as presented by DeLong and Summers. Without some analysis like the above, the DeLong/Summers claims are otherwise contradicted by American post-Depression productivity once joblessness lifted. Where were the long-term scars? Well, they were fixed but it wasn’t easy. So the relevance of hysteresis can be saved, but we still are left with proper stimulus being very difficult to do, unemployment being quite sticky, and proper policy requiring lots of structural attention. The Great Depression is evidence for all of those views, not against them.
Here is one more bit, with a sad sting at the end:
The war, by removing millions of prime men from the labor market, by restructuring the work process, by subsidizing wages, and by massive retraining, finally gave the private sector the methods and the incentives to rehire the hard-core. Never since has hardcore unemployment affected more than one worker in a hundred.
Michael A. Bernstein’s book, The Great Depression: Delayed Recovery and Economic Change in America, 1929-1939, also considers the significant role of structural unemployment (don’t forget my taxonomic caveat) in the Great Depression.
It is important to learn from this literature rather than dismiss it.
Why is unemployment so high in South Africa?
Ryan Cooper writes to me:
Hey Tyler, possible blog post topic: I’m wondering how you would explain the situation in South Africa (or other similar countries) with stupendous persistent unemployment–SA has been above 20% since 2000: http://www.tradingeconomics.com/south-africa/unemployment-rate
A few factors I imagine are important:
1) The education system is totally broken in a lot of places. As in, 12th graders can neither read nor write in any language nor figure out 3×3 in their heads.
2) Unions are crazy strong, and have been driving up wages like gangbusters, particularly in the public sector.
3) Minimum wage laws are stringent and have actually led to worker protests: http://www.nytimes.com/2010/09/27/world/africa/27safrica.html?pagewanted=all
4) Inflation hasn’t been TOO bad recently (~6%), but has seen spikes to almost 14 percent not long ago: http://www.tradingeconomics.com/south-africa/inflation-cpi
5) There’s a highly developed sector. On average, whites are far richer than blacks.6) Crime and inequality are incredibly bad.
7) The ANC has won every election in a landslide and is strongly allied with the unions.So how does it tie together? Lots of poorly-educated ZMP layabouts? Wages too high to start sweatshop-style development? Razor wire + electric fence + security guard costs deterring investment? The results of generations of systematic oppression and denial of education? All of the above, plus some?
Just trying to iron out a coherent story. I was a Peace Corps volunteer for two years there and I’m slowly building up my economics knowledge; this question has always fascinated me.
The hysteresis effect on unemployed labor, and unemployment scarring
Here is a good WSJ piece on labor market hysteresis, a topic also of recent interest to Bernanke, Summers, DeLong, and others. I’ve been trying to learn more about that literature, and here is what I came up with.
Pissarides has a seminal 1992 paper on the loss of skill during unemployment.
This very good paper (pdf) looks at women who take time off to care for their elderly parents, though there is an endogeneity problem. Arguably it is the workers on a lower earnings trajectory who will take the time off. Here is a much earlier 1980s paper on how intermittent labor force attachment lowers women’s wages.
Holocaust survivors seem to have earned lower rates of return on human capital (though interestingly their children do better on average).
This German paper (pdf) shows that state dependence of earnings is, and should be, much lower when the unemployment has been generally high for the labor force as a whole. This paper finds there is not much “scarring effect’ in southern Italy, where unemployment perhaps is less socially shameful, but there is a significant scarring effect in northern Italy; social norms may matter.
This paper on Sweden suggests that one year out of work leads to a depreciation of skills — the skill of reading in their sample — is equal to losing five percentage points in the broader distribution of that skill.
Here is one paper from the psychology literature (with good cites); there are adverse psychological effects for the lower net worth unemployed but not necessarily for the higher net worth individuals.
Here is a whole host of papers on “unemployment scarring.” This one, on the UK, gives a concrete number: “Our results suggest a scar from early unemployment in the magnitude of 13–21% at age 42. However, this penalty is lower, at 9–11%, if individuals avoid repeat exposure to unemployment.” There are some reasonable controls for education and the like, though none for conscientiousness.
I was surprised to learn that “unemployment scarring” is a much more effective search term than is “labor hysteresis.”
Is there any good paper which seriously takes endogeneity of separation into account?
Is unemployment better than Canada?
Or do the Canadians simply do not want us?
They are a projected 335,000 job opportunities arising in British Columbia and Alberta between now and 2014, especially in construction. The biggest demand relates to carpenters, electricians, welders, plumbers, heavy equipment operators and millwrights.
Canada differs from many countries seeking workers abroad in that it encourages long term inward migration by specified groups and facilitates family settlement.
Most of all they are searching in Ireland, it seems.
Unemployment Insurance and Disability Applications
More than 8.5 million workers are now collecting disability insurance, in other words almost 6% of the labor force is officially disabled. Perhaps not surprisingly, disability applications shot up just as unemployment benefits started to exhaust.
Applications are often denied so disability beneficiaries do not follow applications immediately. Denied applicants, however, often contest and apply again so eventually 50-60% of those who apply will typically enter the disability rolls and start to collect. Far fewer will ever exit the rolls, at least not by way of a job.
Since 1995 the number of disabled workers has doubled and expenditures have increased even faster than disabled workers, tripling since 1995. The increase in workers receiving disability insurance has come at the same time as the US working age population has become healthier. A large fraction of the increase in disability has come from increases in hard-to-verify back pain and mental problems (see Autor and Duggan and more recently Autor).
After the 2001 recession, disability applications also shot up and they never fell back to their old levels. We may be reaching a new, permanently higher, plateau.
Disabled workers do not count as unemployed, they have been bought out of the labor force.
The conservative critique of unemployment insurance used to be that it discouraged people from looking for work. The modern conservative response may be that it encourages people to not become disabled.
Does unemployment drive rebellion?
Maybe not. There is a new piece out by Eli Berman, Michael Callen, Joseph H. Felter and Jacob N. Shapiro, in Journal of Conflict Resolution, August 2011. Here is an ungated version, excerpt:
Most aid spending by governments seeking to rebuild social and political order is based on an opportunity-cost theory of distracting potential recruits. The logic is that gainfully employed young men are less likely to participate in political violence, implying a positive correlation between unemployment and violence in places with active insurgencies. We test that prediction on insurgencies in Iraq and the Philippines, using survey data on unemployment and two newly- available measures of insurgency: (1) attacks against government and allied forces; and (2) violence that kills civilians. Contrary to the opportunity-cost theory, we find a robust negative correlation between unemployment and attacks against government and allied forces and no significant relationship between unemployment and the rate of insurgent attacks that kill civilians.
Here is a WQ summary of some additional findings from the paper.