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.

Labour Market Policy and the Reallocation of Labour Across Sectors

This paper investigates the extent of labour market allocation across broad industrial sectors in the transition of 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 pirori 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.

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.

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.

Analysis of stratospheric ozone, temperature, and minor constituent data

The objective of this research is to use available satellite measurements of temperature and constituent concentrations to test the conceptual picture of stratospheric chemistry and transport. This was originally broken down into two sub-goals: first, to use the constituent data to search for critical tests of our understanding of stratospheric chemistry and second, to examine constituent transport processes emphasizing interactions with chemistry on various time scales. A third important goal which has evolved is to use the available solar backscattered ultraviolet (SBUV) and Total Ozone Mapping Spectrometer (TOMS) data from Nimbus 7 to describe the morphology of recent changes in Antarctic and global ozone with emphasis on searching for constraints to theories. The major effort now being pursued relative to the two original goals is our effort as a theoretical team for the Arctic Airborne Stratospheric Expedition (AASE). Our effort for the AASE is based on the 3D transport and chemistry model at Goddard. Our goal is to use this model to place the results from the mission data in a regional and global context. Specifically, we set out to make model runs starting in late December and running through March of 1989, both with and without heterogeneous chemistry. The transport is to be carried out using dynamical fields from a 4D data assimilation model being developed under separate funding from this task. We have successfully carried out a series of single constituent transport experiments. One of the things demonstrated by these runs was the difficulty in obtaining observed low N2O abundances in the vortex without simultaneously obtaining very high ozone values. Because the runs start in late December, this difficulty arises in the attempt to define consistent initial conditions for the 3D model. To accomplish a consistent set of initial conditions, we are using the 2D photochemistry-transport model of Jackman and Douglass and mapping in potential temperature, potential vorticity space as developed by Schoeberl and coworkers

Fast two-dimensional model

A two dimensional (altitude and latitude) model of the atmosphere is used to investigate problems relating to the variability of the dynamics and temperature of the atmosphere on the ozone distribution, solar cycle variations of atmospheric constituents, the sensitivity of model results to tropospheric trace gas sources, and assessment computations of changes in ozone related to manmade influences. In a comparison between two dimensional model results in which the odd nitrogen family was transported together and model results in which the odd nitrogen species was transported separately, it was found that the family approximations are adequate for perturbation scenario calculations