Involuntary unemployment: getting to the heart of the problem

Bill Mitchell and Joan Muysken explore the evolution of economic theory from a construction of unemployment as a voluntary optimal state to the 1930s conception as a systemic failure (involuntary) to the resurgence in current times to a belief that all unemployment is voluntary. This evolution has allowed policy makers to abandon full employment and replace it with the diminished goal of full employability and waste money on a raft of ineffective supply-side programs that coerce and humiliate the victims - the involuntary unemployed

Human capital creates insider power

This paper demonstrates that insiders can erect barriers to entry and skim rents by sinking costs in human capital when labour markets are otherwise perfectly contestable. The sunk costs nature of human capital investments may result from the need to satisfy ever increasing specialised skill requirements in our society. When outsiders can not threat with market entry, insiders invest inefficiently in human capital such that their rent share is maximized. This inefficiency results from the hold-up problem that arises since workers are not residual claimants of the human capital rents. On the other hand, since insiders´ investments are negatively correlated with the number of workers, this may lead to higher than efficient investments nevertheless. When outsiders have an effective entry threat, insiders are forced to accept higher employment of outsiders and share the reduced rents with them. However, full employment is not necessarily reached and in any case investments are higher and social rent is lower than optimal. --Insider-Outsider,Human Capital,Rents,Unemployment,Hold-Up

Disability in the Netherlands: Another Dutch disease?

The Netherlands is well known for its high employment growth and corresponding low unemployment rate. At various occasions the so-called Dutch miracle has been applauded, together with the underlying ‘Polder model’. A feature that initially was less recognised in the international debate, but has been a long-debated topic in the Netherlands, is the vast amount of persons in disability schemes. From the outset of the introduction of the first scheme (WAO) in 1969, disability in the Netherlands has exceeded unemployment and has been growing consistently to a level of over 900 thousand persons. This trend has occurred despite various countermeasures of the Dutch government. Even the major reforms in 1994 only caused a brief respite: after a decrease, the amount of disabled workers in the Dutch disability schemes started to grow again and has nearly reached one million. Hence when regarded in a European context, the incidence of disabled workers in the Netherlands is very high, although unemployment is very low.The high amount of disabled workers, together with its persistence, poses a serious problem, in economic as well as social terms. The inability of the Dutch society to deal with it effectively makes us wonder whether we are observing another Dutch disease. From that perspective we analyse the development over time of disability in the Netherlands and the efforts to reduce its incidence.Economics ;

Immigration and growth in an ageing economy

This paper argues that immigration can help to alleviate the burden ageing presents for the welfare states of most Western Economies. We develop a macroeconomic framework which deals with the impact of both ageing and immigration on economic growth. This is combined with a detailed model of the labour market, to include the interaction with lowskilled unemployment. The empirical relevance of some crucial model assumptions is shown to hold for the Netherlands, 1973 – 2007. The conclusions are that immigration will help to alleviate the ageing problem, as long as the immigrants will be able to participate in the labour force at least as much as the native population. Moreover, the better educated the immigrants are or become, the higher their contribution to growth will be.ageing population, immigration, unemployment, skills

The future of the welfare state : reflections on Rogernomics

In this paper we recognize that reforms of the welfare state can be necessary from an economic point of view. We stress, however, that these reforms also have important social and political dimensions. The social dimensions are conceptualised by using Hofstede''s cultural characteristics. The scores on each of these characteristics can be related to desired characteristics of the welfare state. In a similar way different political views are related to a desired concept of the welfare state. Since consensus is a necessary condition for a successful reform of the welfare state, the reforms should be consistent with the culture of a society and its dominant political view. We apply these insights to the reforms in New Zealand, since these are very radical in nature and have attracted a lot of attention. Hofstede''s scores are used to measure the culture of New Zealand and the political views are derived from election results. Using these measures, we find that the reforms in New Zealand are inconsistent with the culture and the dominant political views of that country. Therefore we expect that a further implementation of the reforms will run into trouble. In order to provide some back-ground, we describe the economic situation in New Zealand and compare it with that of Australia. Since the economic situation of New Zealand does not outperform that of Australia, the favourable developments in New Zealand are not an obvious consequence of the reforms, as it is sometimes claimed. Moreover, we find that income inequalities have increased sharply in New Zealand and that the lower and middle-class incomes did not increase since 1980.mathematical applications;

Health as a Principal Determinant of Economic Growth

For a long time economists have tended to ignore health as a relevant factor of production and important determinant of economic growth. The widely observed positive relationship between health expenditures and economic growth was considered the result of a strong positive income effect. However, gradually more and more economists have come to recognise that the relationship between health and economic growth is not only demand driven, but that health is also an important determinant of economic growth. The latter has mainly been recognised on the basis of empirical cross-country studies, starting for developing economies (see Strauss and Thomas, 1998, for an overview) and later also covering Western economies (Knowles and Owen, 1995; Barghava cs., 2001; McDonald and Roberts, 2002; Webber, 2002). However, until this day only few attempts have been made to present a coherent account of the causal links between health and economic growth....Economics ;

Overeducation, Job Competition and Unemployment

The changing wage and employment structure in some OECD countries has beenattributed to increased levels of education and technical change in favour of skilledworkers. However, in the Netherlands and some other OECD countries the wages ofskilled workers did not rise, whereas investment in skills rose dramatically. This paperoffers a theory which is able to explain the dramatic increase in the level of education andskills without rising wages since the early 1980s. In this respect, we integrate the supplyside framework (human capital investments) and the demand side (containingendogenous skill upgrading as a result of job competition and screening) in a generalequilibrium model. In this way we provide a theory for the empirical observation ofrising unemployment levels among unskilled workers and rising employment levels ofskilled workers with relatively stable wages.economics of technology ;

Health, education and endogenous growth

The purpose of the paper is to show that, from a growth perspective, government resources can be spent in two different ways. Resources can be allocated to uses which support growth, and to uses which generate growth. We take the provision of health services as an example of the first type of use, and the provision of educational services as an example of the second. This enables us to integrate both types of uses of scarce resources in an endogenous growth framework and to derive the optimum mix of the provision of health and educational services both from the perspective of health as a complement to growth and health as a substitute for growth. The model illustrates that there is a trade-off between growth as such and the provision of health-services. It also shows that a slow down in growth could be expected to occur when the preference for health is positively influenced by a growing income per head or in the case of an ageing population. Finally, we show that the model can account for a ’growth take off’ in countries which are too poor to save, and that this take off can be induced by ’just the right’ amount of income transfer to those countries : too little aid doesn’t seem to help at all, while too much aid unnecessarily burdens the long term solvability of the receiving country if aid is provided in the form of loans.economic development an growth ;