Economic Policy Visualization

Labour · Labels

Dr. Matthias Schnetzer

April 24, 2023

Full employment as economic policy goal

  • UN SDG 8.5: “By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.”
  • Full employment is desirable since the individual, economic, and social costs of unemployment are high (Young, 2012): risk of poverty, health issues, decreasing human and social capital, stigmatization, rising government expenditure, etc.
  • However, full employment affects the industrial relations between capital and labour and might thus not be favoured by capital owners (Kalecki, 1943)

Opposing views on the labour market

Neoclassical view

  • Labour market is one among many other markets
  • Price (i.e. real wage) brings labour supply and labour demand into equilibrium
  • Full employment is achieved in the labour market equilibrium, while unemployment is voluntary due to specific labour-leisure choices
  • Involuntary unemployment is a result of third-party intervention into the labour market

(Post-)Keynesian view

  • Labour market is posterior (downstream) to production
  • Demand for labour is determined by effective demand on the goods market
  • Full employment is reached when effective demand equals full capacity utilization
  • Involuntary unemployment is a consequence of lacking aggregate demand by private and public sector.

Goods and labour market in the Keynesian cross

A classification of unemployment

Macroeconomy Specific sectors
Short-term frictional:
people voluntarily leaving their job need some time to find new employment. Unemployment is thus interim and even present in an economy with full employment.		 seasonal:
Seasonal jobs are limited to a certain time period, leaving people in those industries without employment after the season ends (e.g. tourism, construction).
Mid- and long-term cyclical:
the number of unemployed workers varies during cycles of economic ups and downs. Business cycles on average last 5-6 years and typically affect the whole economy.		 structural:
caused by fundamental change in the economy such as evolving technology. While jobs are available, people who could fill those roles either don’t have the right skills or aren’t in the right location.

Policies against unemployment

  • Active labour market policy (ALMP)
    • Aim: integration of the unemployed into the labour market (Card et al., 2017)
    • Examples: coaching, training, subsidies for secondary labour market, assistance for personal issues (homelessness, addiction)
  • Passive labour market policy (PLMP)
    • Aim: social security for the unemployed
    • Examples: unemployment benefits, income support, etc.
  • Activating policies
    • Aim: ALMP paid from funds for PLMP
    • Examples: part-time work for the elderly, training allowances
  • Job guarantee

The measurement of unemployment

  • International definition (ILO/Eurostat)
    • Data: Labour Force Survey (LFS) - 23,000 household per quarter in 🇦🇹
    • Unemployed: if not worked at least 1 hour in the reference week
    • Rate: \[\frac{\texttt{unemployed (15-74 years old)}}{\texttt{labour force (employed + unemployed, 15-74 years old)}}\]
  • National definition
    • Data: Public Employment Service (AMS)
    • Unemployed: officially registered at AMS
    • Rate: \[\frac{\texttt{registered unemployed}}{\texttt{labour force (employed + unemployed)}}\]

Unemployment rates across Europe


Evolution of work time

Labour market participation of parents in Austria

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Bibliography

PI 5620 Advanced Economic Policy | Summer term 2023

Card, David/Kluve, Jochen/Weber, Andrea (2017). What works? A meta analysis of recent active labor market program evaluations. Journal of the European Economic Association, 16(3), 894–931. DOI: 10.1093/jeea/jvx028
Kalecki, Michal (1943). Political aspects of full employment. The Political Quarterly, 14(4), 322–330. DOI: 10.1111/j.1467-923x.1943.tb01016.x
Kasy, Maximilian/Lehner, Lukas (2022). Employing the unemployed of marienthal: Evaluation of a guaranteed job program (Working Paper No. 2022-29). INET Oxford.
Ravi, Shamika/Engler, Monika (2015). Workfare as an effective way to fight poverty: The case of india’s NREGS. World Development, 67, 57–71. DOI: 10.1016/j.worlddev.2014.09.029
Young, Cristobal (2012). Losing a job: The nonpecuniary cost of unemployment in the united states. Social Forces, 91(2), 609–634. DOI: 10.1093/sf/sos071