Economics of the Labour Market

Transcription

1 Economics of the Labour Market

2 Economics of the Labour Market Unemployment and the Costs of Unemployment P. N. (Raja) Junankar Honorary Professor, Industrial Relations Research Centre, UNSW Australia, Emeritus Professor, Western Sydney University and Research Fellow, IZA, Bonn, Germany

3 ECONOMICS OF THE LABOUR MARKET: UNEMPLOYMENT AND THE COSTS OF UNEMPLOYMENT Editorial matter, selection and introduction P. N. (Raja) Junankar, 2016 Foreword G. C. Harcourt, 2016 Chapter 2.1 Macmillan Publishers Ltd, 2008; Chapter 2.2 Macmillan Publishers Ltd, 2008; Chapter 2.3 Macmillan Publishers Ltd, 2008; Chapter 2.4 Macmillan Publishers Ltd, 2008; Chapter 2.5 Routledge, 2004; Chapter 2.6 Taylor and Francis, 2003; Chapter 3.1 Taylor and Francis, 1987; Chapter 3.2 Palgrave Macmillan Ltd, 1987; Chapter 3.3 SAGE Publication, 2000; Chapter 3.4 Australian National University, 1992; Chapter 3.5 SAGE Publications, 2015; Chapter 3.6 Taylor and Francis, 1998; Chapter 4.1 Oxford University Press, 1981; Chapter 4.2 The Royal Economic Society, 1984; Chapter 4.3 Australian National University, 1991; Chapter 4.4 John Wiley & Sons, Inc., 1991; Chapter 4.5 John Wiley & Sons, Inc., 1999; Chapter 4.5 John Wiley & Sons, Inc., 1999; Chapter 4.6 Cambridge University Press, 2000; Chapter 4.7 John Wiley & Sons, Inc., 1985; Chapter 5.1 National Institute of Labour Studies, 1992; Chapter 5.2 SAGE Publications, 1998; Chapter 6.1 Palgrave Macmillan Ltd, 1989; Chapter 6.2 Economic Planning Advisory Council, 1989; Chapter 6.3 Oxford University Press, 1991 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission. In accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6 10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 2016 by PALGRAVE MACMILLAN The author has asserted their right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of Nature America, Inc., One New York Plaza, Suite 4500 New York, NY Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Hardback ISBN: E-PUB ISBN: ISBN ISBN (ebook) DOI / Distribution in the UK, Europe and the rest of the world is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number , of Houndmills, Basingstoke, Hampshire RG21 6XS. Library of Congress Cataloging-in-Publication Data Names: Junankar, P. N., author. Title: Economics of the labour market : unemployment and the costs of unemployment / P. N. (Raja) Junankar. Description: Houndmills, Basingstoke, Hampshire ; New York, NY : Palgrave Macmillan, Includes index. Identifiers: LCCN ISBN (hardback) Subjects: LCSH: Labor market. Unemployment. Classification: LCC HD5706.J DDC dc23 LC record available at A catalogue record for this book is available from the Library of Congress. A catalogue record for this book is available from the British Library. Typeset by MPS Limited, Chennai, India.

4 To My wife Susie Junankar, my daughter Kamini and my son Simon

5 Contents List of Figures and Tables Foreword by G.C. Harcourt Preface and Acknowledgements ix xx xxi 1 Introduction 1 2 The Labour Market Labor Economics Labor Demand Labor Supply Labor Force Participation Employment and Unemployment Estimating the Social Rate of Return to Education for Indigenous Australians 47 3 Youth Labour Markets The British Youth Labour Market in Crisis Relative Wages and the Youth Labour Market The Youth Labour Market: Anecdotes, Fables and Evidence The Dynamics of Youth Unemployment: An Analysis of Recurrent Unemployment The Impact of the Global Financial Crisis on Youth Unemployment Choosy Youth or Unwanted Youth? A Survey of Unemployment Unemployment An Econometric Analysis of Unemployment in Great Britain, The Dynamics of Unemployment: Structural Change and Unemployment Flows Perspectives on Australian Unemployment: The Impact of Wage Setting Institutions in the 1980s Aboriginal Employment and Unemployment: An Overview Unemployment in Australia: Models, Myths and Mysteries Are Wage Cuts the Answer? Theory and Evidence A Political Economy of Unemployment: Causes and Consequences 346 vii

6 viii Contents 5 Long-Term Unemployment Projections of Long-term Unemployment Was Working Nation Working? Costs of Unemployment Unemployment in the European Community: Counting the Costs The Costs of Unemployment in Australia Unemployment and Mortality in England and Wales: A Preliminary Analysis 459 Index 474

7 List of Figures and Tables Figures 1.1 Unemployment rates in the OECD (%) Youth employment: males (percentages) Youth employment: females (percentages) Youth unemployment: males (percentages) Youth unemployment: females (percentages) Youth unemployment: males (thousands) Youth unemployment: females (thousands) Long-term youth unemployment (thousands) Long-term youth unemployment (percentages) Relative labour costs Real earnings Full-time manual employees earnings Non-manual employees earnings Real supplementary benefits Relative labour costs: males Relative labour costs: females Choices at critical ages for Youths Manufacturing, 3rd quarter 1986 to 2nd quarter Retail trade, 3rd quarter 1986 to 2nd quarter Duration of completed spells, Completed spells of unemployment, Unemployment rates, people aged 15 24, and years. Australia, Part-time employment as a share of total employment (%), males aged and years, Australia Part-time employment as a share of total employment (%), females aged and years, Australia, ix

8 x List of Figures and Tables Casual employment as a share of full-time and part-time employment (%), males aged and years, Australia, Casual employment as a share of full-time and part-time employment (%), females aged and years, Australia, Unemployment rates (%), males and females aged years, Australia, Underemployment rates (%), males and females aged years, Australia, Labour underutilisation rates (%), males and females aged years, Australia, Youth employment-population ratios, Australia, Labour force participation rates (%), males and females aged years, Australia, Incidence of male and female youth long-term unemployment (%), Australia, GDP growth rate (% seasonally adjusted) Australia, Full-time earnings ratios, males aged and years, Australia, Part-time earnings ratios, males aged and years, Australia, Full-time earnings ratios, females aged and years, Australia, Part-time earnings ratios, females aged and years, Australia, Male youth unemployment rates (%) and the real minimum wage (AUD), Australia, Female youth unemployment rates and the real minimum wage, Australia, Youth unemployment rates and replacement rates, Australia, Unemployment rates by age, Indonesia, 1996 (%) Unemployment rates by education, Indonesia, 1996 (%) Unemployment by age and education, urban males, Indonesia, 1996 (%) 207

9 List of Figures and Tables xi Unemployment by age and education, urban females, Indonesia, 1996 (%) Trends in unemployment in Indonesia, (%) Trends in unemployment by education among males and females aged 20 24, urban Indonesia, (%) Trends in unemployment by education among males aged 25 29, urban Indonesia, (%) Forward recursive regression: Cusum squared residuals normalised (LURATE C BENCN LCAPAC LAGCAP ILSET) Forward recursive regression: coefficient on BENCN Forward recursive regression: Cusum squared residuals normalised (LURATE C LRINC LRBEN LCAPAC LAGCAP ILSET) Forward recursive regression: coefficient on LRBEN Actual and fitted unemployment stocks, 1967 (III) to 1980 (II) The aggregate Australian unemployment rate, The Accord and unemployment Australian labour force and employment, Australian wage inflation, Australian real hourly earnings, Australian long term unemployment, Australian male proportions of the unemployed who were LTU, Australian female proportions of the unemployed who were LTU, Lewis Model, traditional and modern sectors Full-time employment in the Australian public service (Index numbers: 1973 = 100.0) D Unemployment: stocks and flows Male and female full time employment (1983 = 100) Male and female part time employment (1983 = 100) Male and female unemployment rates a Unemployment rates: with degrees and without post school qualifications b Unemployment rates: with and without post school qualifications 315

10 xii List of Figures and Tables Share of manufacturing employment Unemployment rates % Unemployment rates (% change) UK and Australian unemployment rates Unemployment rates and proportion of long term unemployed 1979/ Proportion of long term unemployment: forecasts compared to actual series PLTU: persons Job creation and job destruction, Job creation and job destruction, Standardised unemployment rates for six industrialised countries (1966 to 1983) Long-term unemployment (persons) Proportion of unemployment which is long-term unemployment and the unemployment rate (females) Proportion of unemployment which is long-term unemployment and the unemployment rate (males) Post sample projections of long-term unemployment: males Post sample predictions of long-term unemployment: females Post sample projections of long-term unemployment: persons A1 Within sample predictions of PLTU: persons Gross domestic product (A) after two recessions: 1983 and Proportion of LTU-WN: men Proportion of LTU-WN: women Actual and predicted LTU-WN: men Actual and predicted LTU-WN: women Actual and predicted LTU-WN: persons Exits from long-term unemployment to labour market programmes relative to total unemployment Actual and predicted employment of wage and salary earners: men Actual and predicted employment of wage and salary earners: women 387

11 List of Figures and Tables xiii Unemployment series: by gender Full-time and total unemployment rates Part-time unemployment rates Incidence of unemployment Jobless rates Decomposition of unemployment by duration: (August values) Calculated total output loss from unemployment Output loss: low and high unemployment scenarios Actual GDP and potential output: Okun s method 441 Tables Private and social costs and benefits Private rate of return to education with AUSTUDY or ABSTUDY aged years, 1991 (assuming proportional income support, adjusting for mean wage growth rates and employment probabilities) Social rate of return to education, aged years, 1991 (adjusting for mean wage growth rates, employment and crime probabilities) Differences between social and private rates of return to education, aged years, 1991 (assuming full income support, adjusting for mean wage growth rates, employment and crime probabilities, and proportional student receiving AUSTUDY or ABSTUDY) A1 Age on leaving school for indigenous and other Australians aged 15 years and over, A2 Descriptive statistics of variables for Indigenous Australians (full sample 1991 Census, aged years) and for native-born non-indigenous Australians (1% sample 1991 Census, aged years) A3 Earnings function for Indigenous and non-indigenous Australians by gender, A4 Mean wage and growth rate from for all Australians, by sex, section-of-state, qualification level and age left school, 1986 and 1991 Census A5 Percentage of recipients of AUSTUDY or ABSTUDY by sex, age years,

12 xiv List of Figures and Tables 2.6.B1 2.6.B2 2.6.B3 2.6.B4 Number and percentage of prisoners, by sex and Aboriginality, Percentage of prisoners by sex and age, all Australians, Number and percentage of prisoners, by sex and known employment status, all Australians, Percentage of indigenous Australians arrested by police in the past 5 years by age and education, NATSIS C1 Private rate of return to education without AUSTUDY or ABSTUDY aged years (assuming full income support, adjusting for mean wage growth rates and employment probabilities), C2 Private rate of return to education without AUSTUDY or ABSTUDY aged years (assuming full income support, adjusting for mean wage growth rates and employment probabilities), First employment of young people (England and Wales) (Of those reaching school-leaving age) a Duration of unemployment. Males under 18 (including school leavers) b Duration of unemployment. Males (including school leavers) c Duration of unemployment. Males (including school leavers) Wage age profiles Test results Wells s demand equations: tests for robustness Alternative models of employment: A reworking of Wells s Tables 13 and 14 (dependent variables: employment (females) under 18) A disequilibrium model: maximum likelihood estimates A1 A selection of results from Wells (1983) Compositional change in age: employment profile within youth employment Compositional difference in age: employment profile within youth employment Levels equation for total hours employed using youth minimum wages and adult minimum wages separately 147

13 List of Figures and Tables xv Levels equation for total hours employed using youth minimum wages and adult AWE separately Levels with relative wage (youth min/adult min), manufacturing Levels equation for total hours employed using relative wages (youth minimum wages/adult AWE) ECM using relative wage (youth minimum wage/adult minimum wage) ECM using relative wage (youth minimum wage/adult AWE) A taxonomy of recurrent spells Unemployment, Long term unemployment, and recurrent spells (sample of survivors with complete data) a Unemployment spells = b Unemployment and not-in-the-labour-force spells = a Unemployment spells = b Unemployment and not-in-the-labour-force spells = a Unemployment spells > b Unemployment and not-in-the-labour-force spells > Total weeks of unemployment, Unemployment spells, Duration of unemployment spells, Unemployment spells by jobs held, Summary statistics, unemployment spells Summary statistics, not-in-the-labour force spells Multinomial logit, unemployment spells Multinomial logit, not-in-the-labour force spells Shares of employment by age and industry (%), males, Australia, May Quarter Shares of employment by age and industry (%), females, Australia, May Quarter Unemployment rates (%), young people aged years, OECD Increases in youth unemployment in Australia, post-gfc (%) Urban unemployment in selected provinces in Indonesia,

14 xvi List of Figures and Tables Unemployment and under-employment by gender, urban and rural areas, Indonesia, Duration of unemployment among young first job seekers and the previously employed (ages 15 29), by level of schooling, Indonesia, Unemployment and employment rates of senior high school educated urban youth (ages 15 29), by education and income of household head, Indonesia, Growth in employment by major sector, Indonesia, (% p.a.) Unemployment rates and distribution of unemployed by age and schooling, urban areas, Indonesia, Unemployment in Great Britain, (dependent variable is LURATE) Unemployment in Great Britain, Unemployment in Great Britain, (dependent variable is LURATE) Instrumental variables estimates of the inflows equation dependent variable: ln(inflows) t Instrumental variables estimates of the outflows equation dependent variable: ln(outflows) t Estimated contributions to the rise in unemployment 1979(I) to 1981(I) Australian labour force, job growth and unemployment, Estimated employment effects from The Accord s wage restraint The labour force aged 15 64: actual and simulated and 1989 labour market outcomes: actual and estimated given no Accord (August levels) A1 Estimating the trend rate of growth of participation by age and gender Labour force status of persons aged 15 years and over: Unemployment rates (in per cent) for males and females aged 15 to 64: Aboriginal labour force status, by age, Unemployment and long term unemployment: CES data 301

15 List of Figures and Tables xvii Percentage distribution of young unemployed across duration categories: June Number of approvals for various labour market programmes Percentage increase in unemployment rates by educational levels Long term unemployment projections: persons Estimated models of the proportion of unemployment of eighteen months and more (LTU-WN) Summary diagnostics of the estimated models of LTU-WN Structural stability of the LTU-WN models Employment function: unit root tests Employment function: cointegration tests Employment function: men and women (dependent variable is employed wage and salary earners) Prediction evaluation A1 Employment function: Error Correction Models (dependent variable is change in employed wage and salary earners) A2 Tests of restrictions on the estimated Error Correction Models Growth of unemployment in the EC Static output loss costs of unemployment (Okun s Law estimates) Comparison of the levels of unemployment data Comparison of the rates of unemployment data Estimated size of the hidden unemployment and its impact on unemployment rates: August values Estimates of the underemployment of the labour force Average durations of unemployment, in weeks: August values Calculated total output loss from gender-specific unemployment: average wage method Calculated total output loss from unemployment: average wage method using average full-time earnings Calculated total output loss from unemployment: average wage method using average total adult earnings Calculated total sector-specific output loss from unemployment: average wage method using average total adult earnings 429

16 xviii List of Figures and Tables Calculated total output loss under alternative unemployment scenarios: average wage method using average total adult earnings Calculated total sector-specific output loss from unemployment under the low unemployment scenario: average wage method using average total adult earnings Calculated total sector-specific output loss from unemployment under the high unemployment scenario: average wage method using average total adult earnings Calculated total output loss from unemployment: average product method Calculated total sector-specific output loss from unemployment: average product method Calculated total output loss under alternative unemployment scenarios: average product method Calculated total sector-specific output loss from unemployment under the low unemployment scenario: average product method Calculated total sector-specific output loss from unemployment under the high unemployment scenario: average product method Estimates of the foregone output: Okun s First Differences method Estimates of the foregone output under alternative unemployment scenarios: Okun s First Differences method Summary of the estimates of the output loss under alternative methods. Proportion of the actual value of GDP Costs of labour market programs Costs of administration of unemployment benefits Unemployment benefit replacement rates for hypothetical families: to Gender-specific unemployment benefit replacement rates: June quarter values Estimated impacts of the increase in the male and total unemployment rates on marriages and divorces Estimated impact of a 1 percentage point increase in the male and total unemployment rate on homicides Log SMR (all causes), 1971 OLS estimation 463

17 List of Figures and Tables xix Log SMR (all causes), 1981 instrumental variable estimation Log SMR (Ischaemic heart diseases), 1971 OLS estimation Log SMR (Ischaemic heart diseases), 1981 OLS estimation Log SMR (Ischaemic heart diseases), 1981 instrumental variable estimation Log SMR (all causes) pooled data 1971 and Log SMR (all causes) pooled data 1971 and Log SMR (Ischaemic heart diseases) pooled data 1971 and

18 Foreword For many decades now, Raja Junankar s writings have been renowned for their concentration on vital social issues arising from the malfunctioning of economies, careful gathering of data, sensible, down-to-earth econometric analysis of it and the provision of humane practical policies with which to tackle the social ills revealed. It is excellent and fitting that the essays of this fine economist have now been gathered together in a number of volumes. The present volume is concerned with his many contributions to the economics of the labour market, emphasising the causes and costs of unemployment in both developed and developing economies. His case studies include Britain, continental Europe and Australia, with an especially important essay on unemployment among Australia s indigenous communities. The author has included a valuable introduction that discusses the characteristics of various competing theories of why unemployment occurs and what can be done about it. Junankar emphasises especially the role of insufficient aggregate demand as a primary cause of involuntary unemployment. He also writes sensibly about technological and structural unemployment. Especially helpful is the contrast he brings out between the nature of unemployment in developed economies as compared to that in developing economies. All said, this is a volume that contains astute analysis of fundamental principles and processes, to which he has brought a compassionate stance to complement his dispassionate analyses and criticisms. Professor Emeritus G. C. Harcourt School of Economics, UNSW Business School xx

19 Preface and Acknowledgements My interest in Labour Economics was first aroused by a set of lectures at the University of Essex by Professor Frank Brechling in the early 1970s. While I was a lecturer at the University of Essex I had several colleagues who provided me with an excellent environment for learning. I had the pleasure of having Professor Tony Atkinson as a colleague and mentor. Subsequently, I worked at the University of Warwick in the Institute for Employment Research where my work on Labour Economics continued. On joining the Australian National University I worked with Professor Bob Gregory, Professor Bruce Chapman and Dr Cezary Kapuscinski on various aspects of Australian labour markets. Although I have not published jointly with Bob Gregory, he has been an important mentor to me. Since I joined UNSW Australia I have had the pleasure of working with Professor G.C. Harcourt and Associate Professor Peter Kriesler who have given me wonderful support. I am grateful to all the above-mentioned people and to many other colleagues of mine who have helped me in my intellectual journey. This book is a selected collection of my published papers over many years that investigate the labour market in Britain, Europe, Indonesia, and Australia. xxi