Unemployment: the way forward for Europe

This paper was originally delivered as a TSB Forum lecture in Glasgow on Thursday 28 October, 1993. Professor Layard argues that unemployment must be reduced permanently below the intolerable levels of the 1980s and early 1990s. To achieve this, reforms must be made in the areas of training and job subsidies for those unemployed for 6-12 months, in training of young people, and in systems of wage determination

In brief: Job guarantee: a new promise on long-term unemployment

Richard Layard and Paul Gregg call for a 'job guarantee' for jobseekers who have been out of work for 12 months or more

Big ideas: wellbeing and public policy

Richard Layard outlines the development of CEP research on what makes people happy and how society might best be organised to promote happiness.Wellbeing, happiness, public policy

Combatting Unemployment: Is Flexibility Enough?

Our conclusions are the most important influences on unemployment come from the following (i) The longer unemployment benefits are available the longer unemployment lasts. Similarly, higher levels of benefits generate higher unemployment, with an elasticity of around one half. On the other hand active help in finding work can reduce unemployment. So more "flexibility" may need to be complemented by more intervention to provide active help. (ii) Union coverage and union power raise unemployment. But if wage bargaining is decentralised, wage bargainers have incentives to settle for more than the "going-rate", and only higher unemployment can prevent them leap-frogging. Although decentralisation makes it easier to vary relative wages, this advantage is more than offset by the extra upward pressure on the general level of wages. Thus, where union coverage is high, coordinated wage bargaining leads to lower unemployment. (iii) Conscious intervention to raise the skill levels of less able workers is an important component of any policy to combat unemployment. Pure wage flexibility may not be sufficient because it leads to growing inequality which in turn discourages labour supply from less able workers. Thus in these areas it is clear what types of reforms are needed. If well designed, such reforms might halve the level of unemployment in many countries. But there are three remedies which have been widely advocated in both OECD Jobs Study and the Delors White Paper. These are: less employment protection, lower taxes on employment, and lower working hours. Our research does not suggest that lower employment taxes or lower hours would have any long term effects; while the effects of lower employment protection would be small. (iv) Lower employment protection has two effects. It increases hiring and thus reduces long-term unemployment. But it also increases firing and thus increases short-term unemployment. The first (good) effect is almost offset by the second (bad) one. The gains from flexibility are small. (v) Employment taxes do not appear to have any long-term effect on unemployment and are borne entirely by labour. There may be some short-term effects, but it is not clear that there would be any fall in inflationary pressure if taxes on polluting products were raised at the same time as taxes on employment were lowered. (vi) Hours of work appear to have no long-term effect upon employment. Equally, if early retirement is used in order to reduce labour supply, it is necessary to reduce employment pari passu unless inflationary pressure is to increase. While flexibility hours and participation can reduce the fluctuations in unemployment over the cycle, they cannot affect its average level.

Tackling unemployment: Europe's successes and failures.

Why has unemployment fallen in some European countries but not in others? To answer this question, Richard Layard, Stephen Nickell and Richard Jackman revisit their landmark analysis of macroeconomic performance and the labour market.

The economics of mental health

In a typical country, one in five people suffers from a mental illness, the great majority from depression or crippling anxiety. Mental illness accounts for half of all illness up to age 45 in rich countries, making it the most prevalent disease among working-age people; it also accounts for close to half of disability benefits in many countries. Mentally ill people are less likely to be employed and, if employed, more likely to be out sick or working below par. If mentally ill people received treatment so that they had the same employment rate as the rest of the population, total employment would be 4% higher, adding many billions to national output