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

Wage divergence and unemployment: the impact of insider power and training costs

The US labour market is characterized by a high skill wage mark-up and low unemployment, while the German labour market has a low skill wage mark-up and a high, mainly unskilled unemployment rate. This paper adds an innovative labour supply explanation to the discussion how these distinct labour market equilibria could arise. Skill-biased technological change induces training needs for the employees willing to work in the skilled labour market and increases relative skill demand. In a simple general equilibrium model, this paper shows that skilled insiders in the USA enjoy higher rents and increase the skilled wage mark-up stronger than in Germany in the wake of skill-biased technological change. The reason is that the unskilled outsiders in the USA do not possess a powerful credible threat to improve their position. This is a consequence from higher training and education costs in the USA for unskilled employees and unemployed. In Germany, the lower skill wage mark-up leads to an increased relative skill demand which is not matched by the skill supply and therefore mis-match unemployment arises. --Mis-match unemployment,training costs,skill biased technological change,Labour supply

Full employment abandoned: shifting sands and policy failures

This paper briefly analyses the shifts in economic theory that have moved policy makers from unambiguously pursuing full employment, to the current state where full employability is justified as being optimal. We also explore how these theoretical developments translated in practice, culminating in the 1994 OECD Jobs Study which eschewed a role for macroeconomic policy in reducing unemployment. The final sections of the paper outline an alternative view of macroeconomic theory and policy opportunities. We argue that a central plank in modern macroeconomic policy settings should be the introduction of employment guarantees, which we term the Job Guarantee (JG).Economics (Jel: A)