How do labour laws affect unemployment and the labour share of national income? The experience of six OECD countries, 1970–2010

Using longitudinal data on labour law in France, Germany, Japan, Sweden, the United Kingdom and the United States over the period 1970–2010, the authors estimate the impact of labour regulation on unemployment and the labour share of national income. Their dynamic panel data analysis distinguishes between the short‐run and long‐run effects of regulatory change. They find that worker‐protective labour laws in general have no consistent relationship to unemployment but are positively correlated with labour's share of national income. Laws specifically relating to working time and employee representation are found to have beneficial effects on both efficiency and distribution thus proxied.     

The economic significance of laws relating to employment protection and different forms of employment: Analysis of a panel of 117 countries, 1990–2013

The authors use time series econometric analysis applying non‐stationary panel data methods to estimate the relationships between employment protection legislation and legal protection of different forms of employment (part‐time, fixed‐term and agency work), and economic outcomes, with a data set based on the Centre for Business Research Labour Regulation Index (CBR–LRI), covering 117 countries from 1970 to 2013. Findings suggest that these laws have become significantly more protective over time and that strengthening worker protection is associated with an increase in labour's share of national income, rising labour force participation, rising employment, and falling unemployment, although the observed magnitudes are small when set against wider economic trends.     

Unemployment in Families: The Case of Housework

Unemployment has consequences for individuals, but its impacts also reverberate through families. This paper examines how families adapt to unemployment in one area of life-time in housework. Using 74,881 observations from 10,390 couples in the Panel Study of Income Dynamics, we estimate fixed effects models and find that individuals spend between 3 and 7 hours more per week in housework when unemployed than when employed, with corresponding decreases of 1 to 2 hours per week in the housework hours of unemployed individuals' spouses. We are the first to show that unemployment is associated both with a reallocation of housework to the unemployed spouse and an increase in the family's total household production time. The results also provide evidence for gender differences in adjustments to the division of labor during unemployment, with wives' unemployment associated with an increase in housework hours that is double the increase for unemployed husbands.     

THE EFFECTS OF MACROECONOMIC CONDITIONS AT GRADUATION ON OVEREDUCATION

This article shows that unfavorable economic conditions at graduation decrease the likelihood of a good job‐worker match over a worker's subsequent career. Mismatch is quantified in terms of overeducation by both industry and occupation. The German Socio‐Economic Panel and region‐level unemployment rates from 1994 to 2012 are used. Instrumental variables estimates account for endogenous graduation timing. A single percentage point increase in regional unemployment causes an increase in the probability of overeducation of 1.6–1.7 percentage points for university graduates. Effects for technical tertiary education and apprenticeship graduates are smaller. Labor market entry conditions affect workers for up to 9 years after graduation. (JEL J23, J22, E32, I23)     

The effect of education on unemployment duration

Exploiting the variation in education induced by a reform that compelled individuals to obtain additional schooling in Turkey, and using administrative unemployment insurance (UI) records, we show that high-educated unemployed workers, compared to their low-educated counterparts, use unemployment benefits longer, and they are less likely to find employment before their benefit periods expire. This suggests education increases one's selectiveness over jobs. We also show benefit generosity impacts the high- versus low-educated differentially. Extended benefits increase low-educated workers' probability of finding employment more than the high-educated. Our findings highlight the importance of considering worker attributes when designing the UI system.     

Unemployment: A labor market perspective

Twentieth century economists have made countless attempts to resolve the causes and cures of unemployment. However none have ventured to consider unemployment not as a social problem but as a market response to political and economic incentives. By treating unemployment as a labor market, where workers rationally select periods of joblessness and where special interest groups profit from unemployment, this paper develops a theoretically consistent model to explain the effects that policy and economic variables have on unemployment. Empirical results support this approach and the worker disincentive effects of UI compensation by estimating simultaneously a demand and supply for unemployment.     

Married women’s added worker effect during the 2008 economic crisis—The case of Turkey

This paper analyzes the labor supply response of married women as a result of their husbands’ job losses (‘added worker effect’). The study uses panel data from Turkey to test the presence of an added worker effect during the global economic crisis of 2008. Identification is achieved by an instrumental variable approach. In particular, an exogenous variation in the output of male-dominated sectors induced by the crisis is used as an instrument for the husbands’ unemployment. Results show that the probability of a woman participating in the labor force increases by 15–28% in response to her husband’s unemployment. However, the effect is not contemporaneous; rather, it appears with a lag of one quarter and only operates for two quarters. The effect is mainly driven by financially-constrained (less-educated and young) couples, which suggests the prevalence of an income effect in spousal labor supply decisions.     

Family challenges created by unemployment

The detrimental effects of job loss and unemployment are not limited to the unemployed worker but ripple out to affect those closest to him or her. These ripple effects most notably impact the unemployed worker’s family, including a spouse or partner and/or children. Previous research related to the impacts on marital or partner relationships and families and the particular effects of unemployment on children is explored. Financial or economic stressors and strain brought about by job loss; the effects of stress and reduced mental health among unemployed workers and their spouses; and protective resources for coping with job loss are also discussed. The impact on children, in particular their mental health, development, and educational/human capital attainment are outlined. Implications for future interventions and unemployment policy are highlighted.     

Low wages and high unemployment rates: The role of social interactions in hiring discrimination

The purpose of this paper is to explain why low-wage workers with identical qualifications to higher-wage workers are more exposed to unemployment. Each worker is considered to belong to a social group (defined according to his/her gender, age, and nationality). We assume that workers experience both productive interdependencies and social interactions within the firm. Also inter- and intra-group interactions determine worker productivity, and frictions on the labor market limit the hiring of the most productive workers. Consequently, externalities acting both within the firm and in the labor market can lead to a higher rate of unemployment for low-wage workers.     

Learned helplessness,discouraged workers,and multiple unemployment equilibria

Unemployment varies strongly between countries with comparable economic structure. Some economists have tried to link this to institutional differences in the labour market. Instead, this paper focuses on a model with multiple equilibria so that the same socioeconomic structure can give rise to different levels of unemployment. Unemployed workers’ search efficiency is modelled within an equilibrium search model and lay behind these results. Learned helplessness causes a pro-cyclical behavior of the aggregate search efficiency, also known as the discouraged worker effect. The model also offers an explanation of why unemployment seems to move more easily up than down.     

The impact of the 2007-2009 recession on workers' health coverage

IMPACT OF THE RECESSION: The 2007-2009 recession has taken its toll on the percentage of the population with employment-based health coverage. While, since 2000, there has been a slow erosion in the percentage of individuals under age 65 with employment-based health coverage, 2009 was the first year in which the percentage fell below 60 percent, and marked the largest one-year decline in coverage. FEWER WORKERS WITH COVERAGE: The percentage of workers with coverage through their own job fell from 53.2 percent in 2008 to 52 percent in 2009, a 2.4 percent decline in the likelihood that a worker has coverage through his or her own job. The percentage of workers with coverage as a dependent fell from 17 percent in 2008 to 16.3 percent in 2009, a 4.5 percent drop in the likelihood that a worker has coverage as a dependent. These declines occurred as the unemployment rate increased from an average of 5.8 percent in 2008 to 9.3 percent in 2009 (and reached a high of 10.1 percent during 2009). FIRM SIZE/INDUSTRY: The decline in the percentage of workers with coverage from their own job affected workers in private-sector firms of all sizes. Among public-sector workers, the decline from 73.4 percent to 73 percent was not statistically significant. Workers in all private-sector industries experienced a statistically significant decline in coverage between 2008 and 2009. HOURS WORKED: Full-time workers experienced a decline in coverage that was statistically significant while part-time workers did not. Among full-time workers, those employed full year experienced a statistically significant decline in coverage from their own job. Those employed full time but for only part of the year did not experience a statistically significant change in coverage. Among part-time workers, those employed full year experienced a statistically significant increase in the likelihood of having coverage in their own name, as did part-time workers employed for only part of the year. ANNUAL EARNINGS: The decline in the percentage of workers with coverage through their own job was limited to workers with lower annual earnings. Statistically significant declines were not found among any group of workers with annual earnings of at least $40,000. DEMOGRAPHICS: Workers with a high school education or less experienced a statistically significant decline in the likelihood of having coverage. Neither workers with a college degree nor those with a graduate degree experienced a statistically significant decline in coverage through their own job. Workers of all races experienced statistically significant declines in coverage between 2008 and 2009. Both men and women experienced a statistically significant decline in the percentage with health coverage through their own job. IMPACT OF STRUCTURAL CHANGES TO THE WORK FORCE: The movement of workers from the manufacturing industry to the service sector continued between 2008 and 2009. The percentage of workers employed on a full-time basis decreased while the percentage working part time increased. While there was an overall decline in the percentage of full-time workers, that decline was limited to workers employed full year. The percentage of workers employed on a full-time, part-year basis increased between 2008 and 2009. The distribution of workers by annual earnings shifted from middle-income workers to lower-income workers between 2008 and 2009.     

Unemployment classifications and subjective well-being

Further research on the impact of unemployment on workers and their families requires greater refinement and more precise measurement of the concept. While previous studies have indicated the effects of unemployment on a wide range of variables, such as health and well-being, many of these studies suffer from imprecision by conceptualizing unemployment too narrowly and by using too strict a dichotomy between currently employed and currently unemployed workers. This research effort attempts to broaden and refine the concept of unemployment by defining it in terms of two job dimensions: current employment status and previous job loss. Using this conceptualization, the authors find that current unemployment after other job losses may have more devastating effects on well-being than losing one's job for the first time. Similarly, among the currently employed, those who have lost jobs in the past may experience more emotional difficulties than those who have never lost their jobs.     

Child support compliance during economic downturns

Prior studies have found little evidence of an association between unemployment and child support compliance. However, few such studies used sample periods including a recession as severe as the one that occurred in 2007–2009 or a period following the Congressional mandate requiring states to adopt immediate wage withholding for all child support orders established after January 1992. While virtually assuring compliance by steadily employed nonresident fathers, this requirement imposes hardships on unemployed nonresident fathers, especially during recessions, because modifying child support orders is costly, difficult, and uncertain. Using the CPS-CSS, this study provides reduced form estimates of the association between unemployment and child support compliance over a period (1993–2011) with severe business cycle fluctuations and immediate wage withholding in full effect. Despite controls for fixed effects (state and year) and a state-specific linear time trend, we found that local unemployment rates were associated with decreases in some measures of compliance in our full sample. In models using non-pass through child support payments, which minimized measurement error due to misreporting, there was a much more consistent relationship between unemployment and compliance. Further, after restricting the sample to cash assistance recipients to avoid bias due to selection into the child support enforcement system, we found that local unemployment rates were consistently, strongly, and negatively associated with compliance. Given the volatility in unemployment rates during recent recessions and in the Great Recession in particular, these findings suggest the potential for a large-scale impact of macro-economic factors on the consistent provisions of child support.     

LABOR MARKET SHARE CONTRACTS WHEN THE FIRM HAS TWO VARIABLE INPUTS

This paper extends Weitzman's analysis of share contracts. Firstly, a second variable input is introduced into a firm's production technology. Some share contracts give the firm an incentive to reduce worker compensation by manipulating the second variable input. This implies that contracts which possess this property cannot support the same long-run equilibrium as would be achieved with a wage contract. Secondly, a positively sloped labor supply curve is introduced. It is shown that while share contracts reduce involuntary unemployment, they may not reduce total unemployment vis-a-vis wage contracts. The paper identifies the factors which determine relative employment variability.     

Tournaments as a Worker Discipline Device

This article explores the macroeconomic implications of tournaments as a worker discipline device in the vein of shirking models. It is shown that, if the full exploitation of tournaments is feasible, there will be no involuntary unemployment. Thus, as far as the elimination of involuntary unemployment is concerned, tournaments can serve as a perfect substitute for the so-called "employment fee" or "bonding" scheme. An immediate corollary of this finding is that the involuntary nature of unemployment must ultimately rely upon impediments that hinder the full exploitation of tournaments.     

Reservation Wages and the Unemployment of Older Workers

Our purpose is to examine the level of reservation wages among older unemployed (45+), and investigate what happens to the level of reservation wages as the length of unemployment increases. Using data from questionnaires completed by unemployed, we examined the reservation wages of 364 individuals and asked whether they would be willing to compromise in terms of their occupation, profession or geographic location to find a job. 112 of the participants responded to two questionnaires over a three-month period to determine the changes in their expectations over time. Additionally, we conducted qualitative interviews with 10 unemployed. We found that older people experienced longer periods of unemployment, and had a greater willingness to reduce salary expectations. The study establishes an innovative connection between older unemployed, reservation wages and the duration of unemployment, showing that higher reservation wages among older unemployed is the cause of prolonging their unemployment.     

The psychological impact of unemployment and joblessness

Economists have identified two principal adverse effects of unemployment. One is the output foregone that could have been produced if unemployed workers had been productively employed. The second is the psychological damage suffered by unemployed workers and their families. Psychologists have offered theories to explain how experiences such as Joblessness may lead to a deterioration in mental health. They also have designed and validated survey instruments capable of measuring various aspects of emotional health. Unfortunately, their efforts to document the psychological impact of unemployment have been plagued by data limitations, while economists largely have ignored this task. The purpose of this study is three-fold. First, we discuss why unemployment and Joblessness are likely to influence an individual's perception of personal efficacy, locus of control, and hence psychological well-being. Second, we discuss and critique existing efforts to examine the relationship between labor force experiences and locus of control. Third, we investigate the relationship between Joblessness and its component parts—unemployment and dropping out of the labor force—on personal locus of control, using observations from the NLSY and an alternative methodological framework. The NLSY is a longitudinal data set that contains detailed information on the personal characteristics of individuals in the sample, their labor force experiences and a specific personal locus of control. In discussing the results we also attempt to shed some new light on the debate between Clark and Summers (1979) and Flinn and Heckman (1982, 1983) over the question of whether being out of the labor force and being unemployed should be thought of as distinct states. We add further insight into this issue by examining whether there are psychological differences, as measured by locus of control, between otherwise comparable members of these two groups. Finally, we reconsider the Ellwood and Ruhm exchange over whether joblessness and unemployment lead to “psychological” scarring. We find that labor force experiences fail to influence personal locus of control for male youths. There is evidence, however, that perception of personal efficacy is altered by joblessness among young women. As the duration of a current unemployment spell lengthens, the likelihood of holding beliefs of personal efficacy decline for young women. There is also some evidence of scarring among women. For females who in the past have spent time both unemployed and out of the labor force, the greater the duration of their joblessness the more likely is a reduction in feelings of personal efficacy and more aggravated one's self-perception of helplessness. We also offer psychological evidence on the relative emotional well-being of the unemployed and labor force drop outs that largely supports the position of Clark and Summers that these conditions are largely indistinguishable.     

UNEMPLOYMENT AND OTHER MEASURES OF LABOR MARKET INEFFICIENCY: A COMPARISON OF U.K. AND U.S. LABOR MARKETS 1931–96

Although unemployment is often used as a measure of labor market inefficiency, economic theory indicates that market inefficiency is determined by both the gap between and the elasticities of supply and demand. Using time series data for the United States and United Kingdom, this article investigates how good the unemployment rate is as a measure of labor market inefficiency by calculating the deadweight loss associated with unemployment rates over time. Results show that the loss arising from unemployment is low across time and countries and that the unemployment rate is often a weak proxy for comparing labor market inefficiency. (JEL J6 )     

Measuring labour absorption problems in developing countries: Limitations of the concept of unemployment

The “standard” unemployment rate is often criticized for omitting large numbers of people who are classified as employed or as not economically inactive, when in fact their situation amounts to unemployment. The author discusses the limitations of this standard definition for developing countries. After reviewing the methodological and statistical problems posed by the standard rate, he looks at the reality behind the words in contexts where the labour market is highly segmented. He shows that the standard unemployment rate underestimates excess labour supply and is a poor indicator of the Decent Work deficit, and considers its limitations in guiding economic policy.     

American unemployment in historical perspective

During the twentieth century, the annual average unemployment rate reported by the Bureau of Labor Statistics data has varied between 1.2 and 24.9 percent. This article, derived from our recent book,Out of Work: Unemployment and Government in 20th Century America, examines and explains variations in unemployment over time. These large fluctuations in unemployment probably account for this century’s obsession with joblessness. Alfred Marshall’sPrinciples of Economics, published in 1890, barely mentions unemployment. Only two short generations later, unemployment was the dominant topic of interest among economists, and the most influential economics book of this century, Keynes’sGeneral Theory of Employment, Interest and Money, was concerned largely with explaining its existence.