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...»
Norway - your guys take a lot of beating!
Roy Hattersley makes a rare appearance in the economics blog today. He has an interesting piece in The Times on the relative prosperity of Norway - a country that lies outside the European Union but which has negotiated access to the EU single market. With very low unemployment (of less than 3% of the labour force, super high per capita incomes, a sovereign wealth fund worth more than £250bn and continued strong revenues from oil exports, Norway is unlikely to test the waters of EU membership anytime soon. A good piece for students of economic integration in the EU.
A Case Study in Labour Mobility - 50 Jobs in 50 Weeks
Perhaps we should expect nothing less from an unemployed Economics graduate, heavily in debt who had become desperate in search of a fulfilling job. Californian Dan Seddiqui went from being homeless and unemployed to getting 50 different jobs in 50 different US states in just 50 weeks and his story is featured in today’s Daily Telegraph
“In just 50 weeks Dan tried everything from being a lobster catcher, a jazz conductor, a TV weatherman and even a Las Vegas wedding planner.” Naturally a book is on the way!
This article is perfect as a starter teaching resource when discussing occupational and geographical mobility of labour and the natural and structural barriers that prevent others doing something similar in their search for worthwhile work.
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.
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.
A2 Macro: Domestic and External Headwinds
As part of an introduction to a deeper analysis of economic cycles one of my A2 groups considered some of the domestic and external economic headwinds that will shape the next stage of the business cycle - not least the likely pattern of any recovery in activity. The aim of the exercise was to emphasise the importance of the inter-connected nature of modern economies. And also to reinforce the idea that policy decisions taken inside the UK economy can be blown off course by external shocks.
Here are some of the ideas
Domestic influences
Consumer expectations - about future changes in taxes, unemployment, house prices, real incomes
Business expectations - the state of confidence / pessimism about sales, costs, credit availability, cash-flow and profits
Scope for further monetary policy decisions - e.g. extension of quantitative easing, edge policy rates to zero
Fiscal policy changes - need to scale back borrowing, control G, likely sharp rise in the tax burden
Access to credit and the cost of borrowing - are the banks and other lenders sufficiently recapitalised to start lending?
External influences
Shape and strength of recovery in economies of our major trading partners
Ability of the global economy to coordinate a sustained recovery
Growing pressures for protectionism / economic nationalism
Volatile exchange rates
Volatile international commodity prices
Large swings in direction of foreign direct investment / international capital flows
It is really important for A2 macroeconomists to keep abreast of the news and develop a deeper awareness of what is happening and the mutliple inter-relationships between economic, financial and political forces. Are we in a substantially brighter position than six months ago? What causes turning points in cycles? The anniversary of the collapse of Lehman Bros is an opportune moment to take stock of where we are.
Some suggestions for reading
Telegraph: Too early to celebrate the end of the recession
Guardian: Recession is officially over, according to leading thinktank
The Times: House prices rise 0.8% to fuel rebound hopes
Keynes v Friedman
A cross posting from my blogging colleague Jon Mace
Today’s extract in The Telegraph from Edmund Conway’s new book looks at Milton Friedman and Monetarism. Economics students need to have a sound awareness of the Monetarism versus Keynesian debate. Friedman and Keynes came from opposing ends of economic ideology. They doctrines have dominated economic thinking and policy over the last 50 years. In short Keynes placed greater emphasis on unemployment than inflation and gave warning that the state of the economy could be improved by some government interference. Friedman argued otherwise.
Conway provides a good analysis of the difference between these two economic giants:
“Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
While Keynes had asserted that it was difficult to persuade workers to accept lower wages, classical monetarist theory argued otherwise: that lower incomes for workers and lower prices for firms were acceptable in the face of rising inflation. The growth rate of an economy, argued Friedman, could be determined by controlling the amount of money being printed by central banks. Print more cash and people would spend more, and vice versa. It also marked an important political departure: whereas Keynes argued politicians should attempt to control the economy through fiscal policy, Friedman advocated giving independent central banks control over the economy using interest rates
The piece then goes on to examine the successes and failures of the two doctrines over the last fifty years. I always think it important for students to have an awareness of the changing economic conditions and favored policies over the decades, it only helps them to ingrain a deeper understanding of the theory.
He finishes the extract with an excellent quote from Martin Wolf:
Just as Keynes’s ideas were tested to destruction in the 1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s and 2000s. All gods fail, if one believes too much.
The article in full can be found here.
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