Q&A: Full employment and inflation
When the economy is at full employment, what measure is most effective in reducing inflation in the short run?
This question hints at the possible trade-off between two macroeconomic objectives - namely high employment and stable prices.
read more...»Q&A: Will the UK economy’s PPF shift inwards because of the recession?
Will the UK economy’s PPF shift inwards because of the recession?
This is an interesting question and hints that a deep recession that lasts longer than we expect can have a damaging effect on the UK economy’s supply-side performance and productive potential.
read more...»Q&A: What is a Keynesian stimulus and will it work?
A Keynesian–style stimulus happens when policy-makers deliberately seek to stimulate one or more of the components of aggregate demand to boost output, jobs and incomes during an economic recession.
read more...»Q&A: Why is youth unemployment so high?
Youth unemployment rates are typically higher than for the rest of the working population. Nearly 4 people out of 10 who are unemployed are aged between 16 and 24. And as our chart shows over 100,000 young people have been out of work for over a year, a figure that has doubled since 2002 although it is much lower than it was when the UK economy was coming out of recession in the early 1990s.
read more...»Japan’s Dangerous Downturn
The export-dependent Japanese economy looks to be in free-fall at the moment. The IMF is forecasting a 6 per cent decline in real GDP this year and exports have collapsed - down 50 per cent on the same time last year. Japan is used to recessions - the lost decade slashed their trend growth rate to one per cent or less. But the pressures on Japanese industry are almost unprecedented.
read more...»Vacant Expressions
Falling demand for workers as the recession bites is leading to a steep decline in the number of job vacancies according to a fresh report from the Recruitment and Employment Confederation.
“Labour market conditions continued to deteriorate as the poor economic climate and reduced company activity levels led to another substantial decline in demand for staff.”
The report also hints that businesses are looking to replace senior staff with cheaper younger workers in a drive to cut labour costs – but that many people approaching retirement are having second thoughts because of the dramatic decline in the value of stock prices and the knock-on effects on the value of pension funds.
read more...»
Blanchflower on Unemployment Strategies
The speech last week by David Blanchflower at the University of Stirling on prospects for the British economy and the rising unemployment crisis received much coverage, but the real value for economics teachers and students comes from accessing the speech itself which is available for download from the Bank of England site.
read more...»Retracing the Road to Wigan Pier
Paul Mason, Newsnight’s Economics Editor embarks on a journey from London to Wigan and considers the impact that a recession that is officially only six months old is having on the labour market. I used this (7 minute) piece with my AS students this week and it proved to be an evocative video clip highlighting in particular the issues of youth unemployment, structural unemployment arising from the collapse of production and jobs in the industrial heartlands of the Black Country and the hidden aspects of the downturn among the legions of self-employed, in this case the 250,000+ mini car drivers working in the UK. Paul Mason writes about his experiences here.
A related story ..... recession (depression?) in Dublin has caused a huge rise in the number of people applying for and apparently getting licences to drive taxis in the capital. This report in the Telegraph says that Dublin now has 16,000 licensed taxis. New York, with a population 17 times as large, has 13,000…... a good example to use of how macroeconomic difficulties impacts directly on localised markets.
Q&A: Is roadbuilding an effective way of reducing unemployment?
Q&A: To what extent would a major road building project by the government be an effective way for the government to tackle unemployment?
Road to recovery or bridge to nowhere?
Road-building projects would count as capital investment spending and (if financed by borrowing) a net injection of demand into the circular flow of income and spending. The question mentions a major programme hinting at projects that together could amount to many millions of pounds.
The question also invites the student to focus on whether this is an effective way to tackle unemployment and so a good answer will go back to the main causes of people being out of work and address how a spending programme might tackle this.
read more...»Programme on unemployment
Public fat cats and private slimming down - jobs market readjustment
Three articles in The Sunday Times examine the jobs market – or lack of it. Robert Watts starts by reporting which occupations are being hardest hit by the recession so far, and has figures from the ONS to show that the fastest percentage rise in unemployment benefit claimants is amongst high-earning professionals such as architects, quantity surveyors and lawyers, with up to 490% increase between December 07 and December 08 (compared to an average across all occupations reveiwed of 46%). The figures also show that middle aged workers are the hardest hit, with a 30% rise in unemployment for the over-50’s, and tomorrow’s edition of Dispatches on Channel 4 reports on a poll showing that more than 10% of people have encountered age discrimination at work.
read more...»Globalisation and EU labour law
The unofficial strike action centred on the Lindsey oil refinery in Lincolnshire is illegal, as any strikes called without a ballot and proper notification are counter to employment law. It seems to be based on a complicated example of sub-contracting involving French, US and Italian companies – an example of globalisation involving ‘a process of deeper international economic integration that involves a rapid expansion of international trade in goods and services between countries’.
read more...»Apprenticeships, skills gaps, information failure and training opportunities
Earlier this month the Prime Minister announced a £140m plan to create 35,000 additional apprenticeship places, of which 20,000 would be in the public sector (and 6,000 with McDonalds, making it the biggest apprenticeship provider in the UK). Lord Young, the minister responsible for apprenticeships in England, promised that those who won apprenticeships in the public sector would be able to complete their training, come what may. This article highlights the plight of a young man who has just lost his engineering workplace experience while studying with one of the largest private apprenticeship training firms in the South West of England.
read more...»Official recession figures and graphics
This BBC resource has bang-up-to-date graphs and data for the performance of the macroeconomy – GDP, Unemployment, House prices, Inflation, Repossession and Interest rates – as well as some interesting regional comparisons and the opportunity to check your own personal inflation rate. It should be read by anyone studying macroeconomics, especially those taking AQA Unit 6 next week!
Equality of unemployment
Getting more women into the labour force and into employment has been a deliberate aim of government intervention over the last 30 years or so. Benefits, training, flexible working and childcare schemes have all focused clearly on encouraging women to work rather than to choose not to do so. Your study of employment figures in the UK will show that the increases in employment over the last 10 years or so have favoured women; more of them are in work, women now earn more than men in a fifth of couples, and more households depend upon a woman’s wage. A quarter of households with children are headed by lone parents, 90 per cent of whom are women.
read more...»Managerial casualties and frictional unemployment
The news that Glen Roeder has been sacked as manager of Norwich City is a reminder of the precarious nature of management in the professional game. The average tenure of a new boss is little more than two years and the League Managers Association web site is a great place to go to find news of the latest batch of people to be shoved through the revolving door.
For many in the professional game, short periods out of work is a recurring fact of life - they are experiencing frictional unemployment whilst waiting for the next ‘big club’ to come calling.
Whether rapid changes of manager actually fundamentally changes the performance of the club on the field is another matter! This article from Tim Harford’s Undercover Economist site dates back to November 2007 and the untimely departure of Martin Jol from Tottenham. But it is still worth reading because Tim flags up research from a committed economist and soccer follower Chris Hope from Cambridge University.
“Christopher Hope is an economist at Cambridge University specialising in the costs of sacking football managers (and the costs of climate change). He estimates that when a manager is replaced, the typical team loses more than 10 league points from the disruption, equivalent to three wins and a draw. The cost of paying off the manager’s contract means less money to pay players and so a further modest points loss.”
“Nevertheless, Hope’s analysis recommends that clubs should sack their managers more often. He has concluded that the following algorithm would improve the performance of premiership clubs. Any new manager should have an eight-match honeymoon, during which time he is safe from sacking. After that, his average results should stay above a miserly 0.74 point per game; that average should be weighted to put about half the emphasis on the most recent five games.”
Should we apply a similar approach to the contracts of Economics teachers?
A Vivid Journey Back to the 1980s
A (super) large hat tip to Andy Amery from Thomas Rotherham College for flagging up this brilliant series of three You Tube Video clips from a Granada documentary in the early 1980s.
read more...»Unemployment dominates the headlines
The rising jobless total dominates the headlines today - students preparing for the OCR2888 paper this month will be interested to see that unemployment in Spain has now risen above 3 million - a rise of 48% over the year.
Independent
High unemployment is here to stay
Times
Thousands of jobs go here, there and everywhere
Financial Times
Making Work
Guardian
Companies to get £2,500 for each long-term jobless recruit
From earth movers to art market the layoffs keep mounting
BBC Business News
UK economy downturn ‘frightening’
Unemployment in Spain reaches 3 million
Long term unemployment
Who would be an employment minister during a recession? It is easy to gloat about the latest batch of record numbers in work when an economy is on the upslopes but less palatible when each day brings a fresh round of job losses, factory closures and business administrations. I look for a politician who is brutally honest and clear about where the economy is.
read more...»Types of unemployment
We were discussing causes of unemployment in an AS Macro lesson today. This brief handout and quick quiz was used to cement some of the causes such as frictional, cyclical and structural. I have uploaded it in word format in case it is of any use.
Student Handout
Types_of_Unemployment.doc
Apprenticeships and Economic Performance
My Monday morning edition of the Financial Times carried an important article on the prospects for apprenticeships during the economic downturn. The broad thrust of the piece was encouraging - a number of Britain’s biggest companies have said that they do not plan to curtail the number of apprenticeship programmes on offer to school and college leavers. It is not simply a case of altruism - a number of studies have shown that investing in the human capital of the workforce can achieve a positive payback in just a few years.
“Recent studies have shown that investing in an apprentice is often cheaper than recruiting qualified workers from rivals and then having to retrain them in the procedures of their new employer…...BT had “calculated a net financial benefit of over £1,300 ($1,910) per apprentice a year when compared with non-apprentice recruitment”......A more recent study by Warwick university for the taskforce’s successor, the Apprenticeship Ambassadors Network, found that it cost £28,762 to train an engineering apprentice but the “employer’s investment was, on average, paid back in less than three years”.
Why is the success of apprenticeship schemes important for the longer-term health of the UK economy? Many of the benefits of vocational programmes show through on the supply-side of the economy:
A lower risk of structural unemployment through lower occupational immobility
Less pressure on the welfare benefits system resulting from long term unemployment
A reduction in the number of unfilled vacancies for skilled workers
Higher productivity and better paid jobs - which then boosts aggregate demand
Ultimately - higher profits for businesses with successful apprenticeship schemes
Reduced dependence on inflows of migrant workers
Better skilled workers will improve the quality of work and provide a stronger platform for greater innovation in their chosen fields
Improved customer service e.g. in industries such as gas supply, plumbing and construction
The FT article can be found here
The website of the Apprenticeship Ambassadors Network is also worth visiting
Pay cuts in a recession
Pay cuts and pay freezes are being flagged up as an increasingly common option by businesses struggling to survive in the early stages of the recession. Formula 1 drivers are being asked to consider cuts in their earnings as teams look to control costs ahead of the 2009 season; staff working for the publisher Penguin who earn over £30,000 have had their salaries frozen. Premier Rugby in Britain will agree, next month, on a reduction in the salary cap from £4m to £3.5m. And a new survey from the British Chambers of Commerce covering 300 member firms has found that 43% plan to freeze wages and salaries in the coming year. Nearly one business in ten will go a step further and attempt to cut basic pay and salaries – a measure described in this article from the Sunday Times as “almost unprecedented in the experience of today’s workers.”
read more...»Paying tax at 90% - the poverty trap
The Independent carries an article today which flags up the disincentives facing thousands of households on low incomes. According to the piece, “A total of 60,000 households receiving income-related benefits or tax credits will face handing 90p of every extra pound they earn to the Treasury next year, twice this year’s total…. and the number of low-income households with a marginal tax rate of more than 60 per cent will grow by 85,000 to more than 1.9 million next year.”
The reason is the complex working of the tax credit and benefit system where working a few extra hours a week causes benefit recipients to lose means-tested (income related) benefits as well as having to pay more in income tax and national insurance contributions. Single mothers returning to work are thought to be especially at risk of the povert ytrap effect - currently, anyone working more than 16 hours a week loses their right to benefits.
This is an important issue - the effective tax rate paid by many thousands of people towards the lower end of the pay ladder can be twice that paid by the richest in society - raising questions not just about economic efficiency and incentives to work (key supply side issues) but basic fairness / equity.
Economics in the classroom - on the telly!
Its not often that television cameras make it into an A Level Economics classroom. But I just spotted this clip from the BBC which features some contributions from Economics students who are getting to grips with the implications of increasing unemployment in the Uttoxeter area. A great clip too for highlighting the knock-on effects on demand when several important employers decide to shed jobs.
A Collapse in UK Vehicle Production
Car manufacturing and commercial vehicle production in the UK slumped to its lowest level for over 21 years last month as the sector suffers from the squeeze on credit and the broader economic recession.
read more...»Hand outs and help ups
With unemployment already rising at an alarming rate and job prospects looking awful for the New Year and beyond, the thorny question of welfare assistance for those out of work becomes more salient by the week.
The government has announced plans for what they believe are radical welfare reforms - designed to provide a carrot and a stick to nudge the economically inactive back into the labour market. It is one thing having the motivation and the skills needed to find fresh employment in a weakening labour market, it is another to find the work that suits you best in a part of the world where you want to live. Keep in mind that - despite the recession - there are still over 600,000 unfilled job vacancies in the UK economy and many of these have been vacant for a lengthy period of time.
Tim Harford produced a timely piece on the costs and benefits of unemployment benefits in his piece for the Financial Times last week. It is a good one to read because it brings into play concepts such as moral hazard and the social consequences of people having sufficient financial resources to spend time looking for the job that makes the most of their experience and abilities.
The Dangers of Wage Cuts
A few weeks ago JCB workers offered to take a pay cut in a bid to prevent hundreds of job losses – their stance was admirable but such has been the drop in demand for JCB’s products that the redundancies went ahead anyway. Today we hear that workers at Corus (bought last year by the Indian steel giant Tata) may have to agree to across the board pay reductions of ten per cent in a similar attempt to stem likely labour shedding.
These are the high profile pay and wage reductions that make the headlines.
But there are countless examples of downward pressure on pay packets – either in the form of cuts in hourly wages or fewer hours worked – that are affecting people throughout the economy, many in small to medium sized businesses.
This BBC news clip looks at the example of a yacht company in Plymouth
Whilst wage flexibility can be a useful tool in minimizing the likely scale of redundancies in employee head counts as the downturn bites, there are dangers if wage reductions become widespread and expected. Here is a timely article by Edmund Conway in the Telegraph that considers the impact of lower pay in an economy at risk of entering a deflationary spiral.
Costs of Unemployment
The UK labour market data will continue to weaken as the winter encroaches and this BBC magazine article is superb in covering the human side of joblessness. Links off the article are very useful too - who are the jobless and an excellent statistical supplement. A seasonal hat tip to Penny Brooks for spotting this new series of articles.
Links to two of my recent blogs on unemployment:
The rise of cyclical unemployment
Will the labour shake out become a jobs rout?
The rise of cyclical unemployment
Across the country and on a daily basis you will read of stories where workers are facing the threat or the reality of losing their jobs.
The economy is in recession and this brings about a fall in the aggregate demand for labour and a rise in cyclical unemployment. In many of the examples I have shown below, the root cause of the labour shedding is a decline in demand in a related industry – for example a cement factory that is finally shutting down because of the severity of the slump in new house-building. Or the employees at a local newspaper in Guernsey in the Channel Island affected by the steep drop in demand for traditional forms of media advertising.
read more...»Mass unemployment - no longer a distant prospect
First the raw numbers
The LFS unemployment rate was 5.8 per cent in the 3 months to the end of September, up 0.4 percentage points from the previous quarter.
The number of unemployed people using the government’s preferred measure (LFS) increased by 140,000 over the quarter.
The claimant count was 980,900, up 36,500 from the previous month
Unfilled vacancies are down: The number of vacancies was 589,000, down 40,000
The working age employment rate was 74.4 per cent - down 0.4% on the previous 3 months
What is striking is just how quickly the unemployment rates are starting to head north. In the past, unemployment has been seen as a lagging indicator of the economic cycle - rising perhaps over six months after the economic downturn has begun in earnest. This time around, such are the pressures on businesses large and small, that the labour shedding has started earlier in the cycle and - on the surface - on a bigger scale.
I have produced a PowerPoint Chartroom presentation for those colleagues who want the latest UK unemployment figures for their classroom teaching.
PowerPoint
Rising_Unemployment_in_the_UK_Economy.ppt
