Much research has documented that unemployment makes people unhappy. But does unhappiness spur the unemployed to look harder for jobs? And if so, why do governments need to help them find work with active labour market policies? CEPR DP8842 finds that the unhappiest of the unemployed do search harder for jobs, but don’t find them faster – suggesting that even the most motivated jobseekers could benefit from activation policies.
The Spanish labour market: A very costly insider-outsider divide
Samuel Bentolila, Juan Dolado, Juan Francisco Jimeno 20 January 2012
Spain has a lower public debt-to-GDP ratio than not only Italy, but also France, Germany, and the UK. So why is it threatened with another downgrade? This column points to the fundamental problem with Spain’s economy – the insider-outsider divide that has led to the highest unemployment rate in the Eurozone. It proposes a single open-ended contract for all workers – a difficult solution whose time has come.
Despite having a public debt-to-GDP ratio that is lower not only than Italy’s but also than that of France, Germany, and the UK, and despite having a new government committed to fiscal consolidation, Spain is still in trouble. It faces difficulties obtaining credit in international financial markets. Aside from the unresolved restructuring of its banking sector, this situation has arisen mainly as a result of a lack of competitiveness and low expected economic growth.
Jobs and the lack of them are top of the agenda for policymakers and increasingly groups of protestors gathered in the financial districts of New York, London, and elsewhere. Unemployment in these countries is in danger of reaching 10%. In Germany, however, unemployment is below 7%. Some hail it as a miracle. This column finds a scientific – and far less inspiring – explanation.
At a time when unemployment rates in France, Italy, the UK, and the US are stuck around 8%-9%, many are turning to the apparent miracle in the German labour market in search of lessons. In 2008–09, German GDP plummeted 6.6% from peak to trough, yet joblessness rose only 0.5 percentage points before resuming a downward trend, and employment fell only 0.5%. In August 2011, the standardised unemployment rate was about 6.5%, the lowest since the post-reunification boom of 20 years ago (Source: Bureau of Labour Statistics).
Firms’ deleveraging and the persistence of unemployment
Tommaso Monacelli, Vincenzo Quadrini, Antonella Trigari18 October 2011
Three years after the beginning of the Great Recession, the US unemployment rate remains at 9%, double its pre-crisis level. This column suggests the credit crunch may be behind this high number. It argues this is not because lower debt impairs the hiring ability of firms, but because it places firms in a less favourable bargaining position, allowing workers to negotiate higher wages, and thus reducing employment.
The recent financial turmoil has been associated with a depressed state of the labour market. The unemployment rate in the US has risen from 5.5% to more than 10% and continues to remain close to 9% three years after the beginning of the recession (see Figure 1).
Market psychology, high unemployment and rational bubbles
Roger E. A. Farmer 18 August 2011
One explanation for the 2007-09 global crisis is that consumers, markets, and politicians were gripped by “irrational exuberance” that led them to believe the record-high house prices and stock prices were sustainable. This column proposes a new explanation based on rational behaviour and microeconomic theory. It argues that however high stock prices rise, there is always an equilibrium in which they can rise further.
According to a popular narrative (e.g. Shiller 2008), the Great Recession was caused by a bubble in the housing market. When the bubble burst, households were left with mortgages that exceeded the values of their houses. When they stopped spending, the resulting fall in consumer demand triggered an increase in unemployment. The drop in housing wealth was accompanied by a stock market crash, precipitated by the failure of Lehman Brothers in the fall of 2007.
Although this narrative fits the facts, it poses two major difficulties for conventional microeconomic theory.
Erik Hurst, Loukas Karabarbounis, Mark Aguiar17 August 2011
When jobs are scarce, what else is there to do? This column looks at data from the American Time Use Survey (ATUS) and finds that roughly 30% to 40% of time not spent working is put towards increased “home” production, 30% of time is allocated to increased sleep time and increased television watching, while other leisure activities make up a further 20% of the foregone market work hours.
After years of steady growth, the global economy has turned and so too has the interest in unemployment (see recent examples on this site Smith 2011 and Cingano and Rosolia 2011). The rising levels of unemployment around the world bring up some key questions:
Labour-market policy can try to make it easier to get hired or harder to get fired. This column asks which of these approaches policymakers should prioritise. Focusing on the UK, it finds that while job-finding rates could be improved, policies aimed at reducing the amount of job losses during a recession play an equally important role despite being less in vogue.
The labour market is in a continual state of flux. Workers are hired, fired, joining the labour force and leaving the labour force. The balance of these flows determines the unemployment rate. In the US, research suggests that job finding is most influential in driving unemployment changes (Shimer 2007), although separation from jobs also plays a role at the start of recessions (Barnichon 2009, Elsby Michaels and Solon 2009; Fujita and Ramey 2009). But the US labour market stands out as different from other countries in its high level of turnover (Elsby et al. 2008).
Where are the jobs? Out there, somewhere. Perhaps.
Alfonso Rosolia, Federico Cingano17 July 2011
If you lose your job, can you find a new one with a little help from your friends? This column presents evidence that displaced Italian workers with more employable friends and social contacts are unemployed for a shorter period of time.
The global crisis hit jobs hard. According to the OECD, between 2007 and 2010 the number of employed people fell by almost 5 million throughout OECD countries and the number of job seekers rose by over 16 million. It is now about two years since the trough of the recession, and unemployment rates remain at historical highs in many advanced economies despite signs of recovery in economic activity and labour demand.
Egypt’s demographic pressure – Where and how to create jobs?
Marga Peeters02 June 2011
After the drama of Egypt’s revolution comes the economic reality – one of the catalysts for regime change was the country’s high unemployment. This column shows that the growing number of young people entering the job market will only add to the pressure. It argues that job creation in the private sector should be the number one priority for stimulating Egypt’s economic growth.
Demographic developments place Egypt among the group of countries around the globe with the highest labour-supply growth for many years to come. The Egyptian economy can reap a demographic dividend from this human capital potential if the new entrants find a job (see also Noland and Pack 2008).
Coping with crises: Policies to protect employment and earnings
Pierella Paci, Ana Revenga, Bob Rijkers19 April 2011
When a crisis hits, how should policymakers move to save jobs? This column reviews the evidence from policy responses to recent crises, highlighting the importance of being prepared. It finds that countries with prudent fiscal management and sound policy infrastructure tend to suffer relatively smaller and shorter negative shocks than others.
“There cannot be a crisis next week. My schedule is already full.” – Henry A Kissinger
Crises are difficult to predict, yet their recurrence is an empirical regularity in both developing and developed countries. Nevertheless, as painfully highlighted by the ad hoc and reactive nature of the policy responses to the financial crisis of 2009 and 2010, many countries are ill-prepared to manage these recurrent shocks.