Tuesday, 3 March 2015

Our labour market in perspective

I wrote a piece the other day, basically saying that, if you're concerned about unemployment, you're likely to be better off if you come up with some form of social protection that doesn't impede the flexible working of the labour market, rather than reaching for some "job protection" measure that makes it harder for employers to lay people off. Making it harder to fire, for example, makes it less attractive to hire in the first place.

Since then I was browsing on the excellent Vox site, which is where the Centre for Economic Policy Research posts shorter version of its research papers (the papers themselves are, sadly, only available by subscription, through you can see the titles and read the abstracts here). And I came across a piece by Jan van Ours, a professor of labour economics at Tilburg, that was mostly about other things but happened to throw a little light on how well our own labour market is performing. It included a graph (below) which compared unemployment rates in a range of countries in 1985 and 2013, the years being chosen because they were at a roughly similar point in the global economic cycle ("a couple of years after the 1980s recession and the Great Recession respectively"). The chart's not perfect - Ireland for example happened to be in a tight cyclical spot in both years, for different reasons - but it's still a good general guide to which countries had persistently low or persistently high unemployment.

Some countries can burden themselves, more or less permanently, with labour markets that work systematically badly, and other countries have devised labour market regimes where unemployment tends to be systematically low. Or as the author says, "Clearly, despite the difference of 28 years, the unemployment rates in the two years are highly correlated across the countries. Spain has the highest unemployment rate in both years whereas Austria, Japan, Norway, and Switzerland have the lowest unemployment rates in both years", and, I'm pleased to say, we're in the same neighbourhood as the good guys. We've got a system that works, by international standards.

I also quite liked the author's conclusion (and it applies to other less easy to employ groups, too) that "Economic growth affects above all the position of young workers. Economic growth causes youth unemployment rates to go down quickly and youth employment rates go up fast. Therefore, economic growth benefits mostly those who need it the most". In these post-Piketty days there's a lot of attention, some of it deserved, on inequality and possible redistribution policies: let's not forget the bleeding obvious, that running the economy at full capacity, with decent jobs likely to be available for more marginal groups, does wonders for social outcomes.

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