US jobless figure climbs above 10 per cent
It perhaps has a political significance greater than its marginal economic impact - but when one worker in ten is out of work, an economy truly is on the verge of mass unemployment. The US economy is showing signs of a rebound in demand and production but the labour market data continues to show the depth of the preceding slump. Over eight million Americans have now lost their job since the start of the recession in December 2007, with more than 15m Americans now out of work. Here are some links to coverage of this news.
Guardian: US jobless rate hits 10%
Independent: Sharp rise in US unemployment figures
Unemployment & the UK Labour Market - Teacher Presentation
This updated revision presentation examines the key issues involved with rising unemployment in the UK labour market. It looks at new data on the causes and consequences of UK unemployment and also touches on the regional, gender and other differences in the experience of unemployment - there is a set of right up to date charts on these aspects.
Launch interactive presentation on UK unemployment
Download printable pdf version of the slides
230 million unemployed worldwide - the economic and social fallout
I was listening to BBC Business World today and came across this revealing and thoughtful interview on the global impact of the huge rise in joblessness. According to the UN’s International Labour Organisation, there are upwards of 230 million unemployed people on this planet, around seven per cent of the workforce. This is a figure set to rise sharply despite an upturn in the global economic cycle - for as we know, unemployment is a lagging indicator. It tends to turn around with a delay after demand and production has started to rise again.
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Public debt and intergenerational equity
With government borrowing set to rise above £175bn this year and total public sector debt already approaching 60% of GDP and set to surge much higher in the coming years, attention is now focusing on who will pay for this almost total collapse of fiscal discipline. There truly is no such thing as a free lunch - next year the costs of servicing the national debt will be over £60m a day.
The latest National Institute report makes for somber reading. They project that an economic recovery built around exports may do little to reduce the size of government borrowing and escalating debt and that a structural budget deficit in excess of 6% of GDP is likely to persist. Ray Barrell’s quote in this article in the Times is a classic example of the problem of inter-generational equity:
read more...»
Escaping from the Poverty Trap
There is a timely article on the existence of the poverty trap here in the Financial Times. The article draws on some of the recent research by the Centre for Social Justice which has looked at the disincentives facing people who want to earn extra income either by leaving the unemployment register or by taking a second job or working some extra hours. There are hundreds of thousands of people whose ’effective marginal tax rate‘ is well in excess of sixty per cent.
As this article in the Times makes clear “Marginal tax rates actually refer to the extra tax you pay in proportion to every extra pound you earn as your income rises.:
And for others, the net gains from earning higher gross incomes are even smaller.
The poverty trap comes about because for every £10 of higher incomes many lower-income families
1: A loss of income from tax and national insurance
2: The withdrawal of means-tested social security (welfare) benefits
Add in the financial costs of child care, traveling to and from work and the deterrent to finding a job or accepting some extra hours can be tough to overcome.
Disincentives matter hugely in the labour market and benefit reforms are likely to figure prominently in the manifesto of the Conservative Party at the next general election. It seems at the moment that they are taking a lead in developing a more radical approach to labour market reform. The Centre for Social Justice appears to be influential in reshaping their strategies to get people off benefits and into work.
The UK Economy - a Long Run Perspective
We tend to focus on short run changes in output, jobs, prices and profits and risk missing the long term picture of where an economy is. A year ago I produced this chartroom presentation as the UK economy entered recession - this has now been updated and might be useful for colleagues helping students develop an appreciation of the long-run trends in key UK economic data. It is available for download in pdf and scorn-compliant VLE format.
Launch streamed revision presentation on the Long Run Perspective
Download SCORM-compliant VLE ZIP version
Download printable pdf handout version
Explaining the Paradox of Thrift
Dugie Young looks at the paradox of thrift and its relevance to today’s financial and economic crisis.
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Pain in Spain - on the brink of depression
In our introductory AS macroeconomics we have discussed the differences between a cyclical recession and a depression. Much depends on the scale of the contraction in real national output from peak to trough of the cycle. This article from the Telegraph looks at a dire outlook for the Spanish economy which - not long ago - was one of the fastest growing countries in the European Union with a rising relative per capita income.
Quoting a report from Madrid research group RR de Acuña & Asociados, the peak to trough loss of GDP is likely to be more than 11%. “The group said Spain’s unemployment will peak at around 25pc, comparable to the worst chapter of the Great Depression......The construction sector will shrink from 18pc of GDP at the peak of the boom to around 5pc, making it unlikely that there will be any significant recovery before 2012. Even then growth will be “slow, weak, and fragile”.
A huge rise in the Spanish government’s budget deficit has left them little wriggle room for a fresh fiscal stimulus.
Spain and Ireland are frequently quoted as two EU countries whose property bubbles have been well and truly smashed with huge macroeconomic consequences. The slump in property represents a very large internal demand-side shock for a country heavily dependent on construction and also tourism for value-added measures of GDP.
How recession has affected migration
The BBC has commissioned a special report on the impact that the global recession has had on flows of migrants workers in the world economy. Deteriorating employment prospects in many of the advanced rich economies has stemmed the inflow of migrants - Spain and the UK are two good examples here. But the ripple effects of the credit crunch have hit virtually every economy. Although much migration appears to be cyclical (and in many cases, seasonal in nature) many migrants have decided to stay put in their new country of residence in the hope of weathering the economic storm or because their chances of finding viable work in their home country have diminished too. One thing is sure, the scale of migrant remittances has fallen sharply and is likely to do so again in 2010 - remittances form a high percentage of GNP for many of the world’s poorest nations. This BBC report contains some very useful graphics that might be used to aid classroom discussion.
Keynes and the Multiplier Effect
I am cross-posting Jon’s excellent blog on Keynes and the multiplier over at his excellent IB Blog that flags up some handy recent articles on this important macro policy concept:
The Telegraph continues with it series of extracts from Edmund Conway’s new book and today it focuses on the twentieth centuries greatest economist John Maynard Keynes.
In its simplest form Keynesianism argues that governments should be proactive during economic downturns rather than relying upon the power of the markets and interest rate cuts. Proactive in the sense that the government should borrow money and start spending. The doctrine lost favour in the 1970s as monetarist theory gained popularity. As you will be well aware Keynes has returned in earnest over the past 18 months as governments across the globe have pumped billions into the spluttering economies in the hope of restarting them. Although early days there are tentative signs that Keynes may have be right once again.
Key to his argument of the effectiveness of pumping money into an economy is that of the multpier. Conway provides an excellent overview of the multiplier in his piece today:
Say the US government orders a $10bn (£6bn) aircraft carrier. You might assume the effect of this would be merely to pump $10bn into the US economy. Under the multiplier argument, the actual effect would be bigger. The shipbuilder takes on more employees and generates more profits; its workers spend more on consumer goods. Depending on the average consumer’s “propensity to consume”, this could raise total economic output by far more than the amount of public money actually injected.
If the $10bn increase caused total United States economic output to rise by $5bn, the multiplier would be 0.5; if it rose by $15bn, the multiplier would be 1.5.
The article also provides some good points that students could use when being critical of fiscal policy (these were particuarly prevalent when monetarists were arguing against Keynesianism in the 1970s):
One of their main arguments was that governments cannot “fine-tune” an economy by regularly adjusting fiscal and monetary policy to keep employment high. There is simply too long a time lag between recognising the need for such a policy (tax cuts, say) and the policy taking effect. Even if policy-makers speedily identify the problem, it takes time for laws to be drafted and passed, and more time still for the tax cuts actually to drip through the wider economy.
There are a couple of recently published books on Keynes that you may want to get your teeth into:
Keynes: Return of the Master by R Skidelsky
Keynes: The Twenthieth Century Most Influential Economist by P Clarke
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