YOUTH UNEMPLOYMENT AND CRIME IN FRANCE

In this paper we examine the influence of unemployment on property crimes and on violent crimes in France for the period 1990 to 2000. This analysis is the first extensive study for this country. We construct a regional‐level data set (for the 95 départements of metropolitan France) with measures of crimes as reported to the Ministry of Interior. To assess social conditions prevailing in the département in that year, we construct measures of the share of unemployed as well as other social, economic, and demographic variables using multiple waves of the French Labor Survey. We estimate a classic Becker‐type model in which unemployment is a measure of how potential criminals fare in the legitimate job market. First, our estimates show that in the cross‐section dimension, crime and unemployment are positively associated. Second, we find that increases in youth unemployment induce increases in crime. Using the predicted industrial structure to instrument unemployment, we show that this effect is causal for burglaries, thefts, and drug offenses. To combat crime, it appears thus that all strategies designed to combat youth unemployment should be examined. (JEL: J19, K42, J64, J65)     

Crime and Labour Market Opportunities in Italy (1993–2002)

Abstract. This paper investigates the relationship between labour market conditions and crime in Italy accounting for both age and gender in the unemployment measure and considering regional disparities between the North‐Centre and the South of Italy. Using regional data over the period 1993–2002, we study the impact of wages and unemployment on different types of crime. To mitigate omitted variables bias, we control extensively for demographic and socio‐economic variables. Empirical results suggest that unemployment has a large and positive effect on crime rates in southern regions. Our results are robust to model specification, endogeneity, changes in the classification of crimes, and finally, to alternative definitions of unemployment.     

UNEMPLOYMENT INSURANCE IN EUROPE: UNEMPLOYMENT DURATION AND SUBSEQUENT EMPLOYMENT STABILITY

This paper provides evidence on the effect of unemployment insurance on unemployment and subsequent employment duration in Europe using individual data from the European Community Household Panel. Country‐specific estimates based on a multivariate discrete‐time duration model, which takes into account dynamic selection issues and the endogeneity of benefit receipt, suggest that although receiving benefits has an adverse effect in the sense of increasing unemployment duration, there is also a positive effect associated with the increased duration of subsequent employment. This beneficial effect of unemployment insurance on employment stability is pronounced in countries with relatively generous benefit systems, and for recipients who have remained unemployed for at least six months. These findings are in line with theories that suggest a matching effect of unemployment insurance. (JEL: J64, J65, C41)     

PRODUCT MARKET REGULATION,FIRM SELECTION,AND UNEMPLOYMENT

This paper analyzes the effect of product market regulation (PMR) on unemployment in a search model with heterogeneous multiple‐worker firms. In our setup, PMR modifies the distribution of firm productivities, thereby affecting the equilibrium rate of unemployment. We distinguish between PMR related to entry costs and PMR that generates recurrent fixed costs. We find that: (i) higher entry costs raise the rate of unemployment mainly through our novel selection effect, (ii) higher fixed costs decrease unemployment through the selection effect and increase it through the competition effect analyzed in Blanchard and Giavazzi (2003, Quarterly Journal of Economics, 118, 879–907). Firm heterogeneity magnifies the impact of both types of regulatory costs. We propose econometric evidence consistent with the unemployment effects of sunk versus recurring costs.     

TURBULENCE AND UNEMPLOYMENT IN A JOB MATCHING MODEL

According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse new jobs due to high unemployment benefits. In this paper we reassess the turbulence‐unemployment relationship using a matching model with endogenous job destruction. In our model, higher turbulence reduces the incentives of employed workers to leave their jobs. If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment. Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers. (JEL: E24, J64)     

STAUNCHING EMIGRATION FROM EAST GERMANY: AGE AND THE DETERMINANTS OF MIGRATION

Following the unification of Germany in 1990, eastern wages and unemployment both rose rapidly. I demonstrate that rising wages reduced eastern emigration greatly, while rising unemployment had little effect. This reflects the behavior of the young, who are very sensitive to source region wages, and relatively insensitive to source unemployment. I show that most of the effect of source unemployment comes from the contemporaneous effect on those laid‐off, who are more likely to be older. I find that, compared to stayers, young emigrants are much more skilled, older emigrants are slightly more skilled, and commuters are not more skilled, as measured by education and pre‐move wages. My conclusions are based on a comparison of results from aggregate inter‐state migration data and individual data from the eastern sample of the German Socio‐Economic Panel for 1990–2000. (JEL: J61, P23)     

Evaluating the Dynamic Effects of Active Labour Policies in Italy

Abstract. This paper analyses whether active labour market policies (ALMPs) have differing effects on unemployment and employment dynamics according to the particular region in which they are implemented. To this end, it analyses alternative theoretical and econometric models thought to capture the possible effects of active labour market policies on labour force dynamics. The econometric methodologies implemented are the generalized method of moment (GMM) and the panel vector autoregression (P‐VAR). The evidence yielded by the GMM models suggests that the effects of different ALMPs on unemployment are dissimilar across the Italian regions. It follows that some active programmes are likely to have a greater effect in the South than in the North. The results of the P‐VAR models estimated are synthesized by impulse response analysis and forecast error variance decomposition. The impulse response analysis suggests that an increase in total ALMP gives rise to: (i) a decrease in the unemployment rate; and (ii) a significant increase in labour force participation. More interestingly, the results obtained from the error variance decomposition analysis show that unemployment movements are not driven by shocks in the ALMPs and that, especially in the northern regions, atypical contracts shocks account for a substantial portion of unemployment dynamics.     

EQUILIBRIUM INCENTIVE CONTRACTS AND EFFICIENCY WAGES

We analyze the optimal (efficiency) wage contract when output is contractible but firms neither observe the workers' effort nor their match‐specific productivity. Firms offer wage contracts that optimally trade off effort and wage costs. As a result, employed workers enjoy rents, which in turn creates unemployment. Nonetheless, the incentive power of the equilibrium wage contract is constrained efficient in the absence of taxes and unemployment benefits. We also show that more high‐powered incentive contracts tend to be associated with higher equilibrium unemployment rates. (JEL: E24, J30, J41)     

Unemployment Determinants for Women in Spain

Spain has one of the highest rates of unemployment among OECD countries. Some explanations for this stress the importance of unemployment duration compared with entry rates to the unemployment pool. Long‐term unemployment rates are particularly high among women in Spain. The object of this paper is to investigate the determinants of unemployment duration among women. It will consider personal characteristics (education and age), family background, socio‐economic variables (the number of household earners and household income) and the effect of unemployment benefits, using data from the Household Expenditure Survey 1990–91.     

DISTANCE TO RETIREMENT AND OLDER WORKERS‘ EMPLOYMENT: THE CASE FOR DELAYING THE RETIREMENT AGE

This paper presents empirical evidence and a theoretical foundation in favor of the view that the retirement age decision affects older workers' employment prior to retirement. To the extent that there are search frictions on the labor market, the return on jobs is determined by their expected duration: The time to retirement is then key to understanding older workers' employment. Countries with a retirement age of 60 are indeed characterized by lower employment rates for workers aged 55–59. Based on the French Labor Force Survey, we show that the likelihood of employment is significantly affected by the distance to retirement, in addition to age and other relevant variables. We then extend McCall's job search model by explicitly integrating life‐cycle features with the retirement decision. Using simulations, we show that the distance effect in interaction with the generosity of unemployment benefits and the depressed demand for older workers explains the low rate of employment just before the eligibility age for the Social Security pension. Finally, we show that implementing actuarially fair schemes not only extends the retirement age, but also encourages a more intensive job search by older unemployed workers. (JEL: J22, J26, H55)     

A Duration‐sensitive Measure of the Unemployment Rate: Theory and Application

The measurement of unemployment, like that of poverty, involves two distinct steps: identification and aggregation. In this two‐step process, the issue of identifying the unemployed has received considerable attention but, once the unemployed have been identified, the aggregation issue has been addressed by simply ‘counting heads’: the unemployment rate is conventionally defined as the proportion of the labour force that, on a given date, is unemployed. This, in particular, leads to differences between individuals, in their unemployment experiences being ignored when the unemployment rate is being computed. This paper — predicated on the proposition that what matters to a person is not just the fact of unemployment but also its duration — proposes a methodology, derived from the measurement of income inequality, for adjusting unemployment rates so as to make them ‘duration‐sensitive’. In consequence, different values of the ‘duration‐sensitive’ rate will, depending upon the degree of inequality in the distribution of unemployment duration, and upon the extent to which society is averse to such inequality, be associated with the same value of the conventionally defined unemployment rate. A numerical example, based on published data for seven major OECD counties, illustrates the methodology.     

Regional Labour Market Adjustment: Are Positive and Negative Shocks Different?

This paper analyses regional labour market adjustment in the Finnish provinces during 1971–96. It investigates the interrelations of employment, unemployment and labour force participation to examine how a change in labour demand is adjusted to. The study questions the usual assumption that positive and negative shocks evoke similar adjustment processes. Instead, we test for the possibility that the effects of positive and negative shocks are asymmetric. The analysis reveals that there is little asymmetry in the adjustment to region‐specific labour demand shocks, but adjustment to total (region‐specific plus common component) shocks displays more asymmetry. The region‐specific component of a labour demand shock has short‐lived effects on unemployment and participation, and its effect on employment is very small but permanent [persistent?]. Initially, most of the fall in employment is absorbed by the unemployment and participation rate, but after a few years migration plays a larger role in the adjustment process.     

Do Benefit Hikes Damage Job Finding? Evidence from Swedish Unemployment Insurance Reforms

Abstract. In 2001 and 2002, Sweden introduced several unemployment insurance reforms. A major innovation in the first reform was the introduction of a two‐tiered benefit structure for some unemployed individuals. This system involved supplementary compensation during the first 20 weeks of unemployment. The 2002 reform retained the two‐tiered benefit structure but involved also substantial benefit hikes for spells exceeding 20 weeks. This paper examines how these reforms affected transitions from unemployment to employment. We take advantage of the fact that the reforms had quasi‐experimental features where the ‘treatments’ differed considerably among unemployed individuals. We find that the reforms had strikingly different effects on job finding among men and women. The two reforms in conjunction are estimated to have increased the expected duration of unemployment among men but to have decreased the duration of unemployment among women. The overall effect on the duration of unemployment is not statistically different from zero. However, the reforms reduced job finding among men who remained unemployed for more than 20 weeks.     

EQUILIBRIUM SEARCH UNEMPLOYMENT,ENDOGENOUS PARTICIPATION,AND LABOR MARKET FLOWS

The sustainability of welfare states requires high employment and high participation to raise the tax base. To analyze labor supply in a world with market frictions, we propose and solve a macro model of the labor market with unemployment and labor force participation as endogenous and distinct states. In our world, workers' decisions of participating are determined by an entry decision and an exit decision. A calibration of the model improves the usual representations of labor markets, since it quantitatively accounts for the observed flows between employment and nonparticipation. The paper investigates also the effect of payroll taxes and unemployment benefits on participation decisions. Taxes reduce entries and increase exits, whereas unemployment benefits, at a given job‐finding rate, raise entries and have ambiguous effects on exits. (JEL: J2, J6)     

Do Marginal Employment Subsidies Increase Re-Employment Probabilities? Preliminary Results on the Experiment of the Agenzia del Lavoro of Trento (Italy)

ABSTRACT: The purpose of this paper is to test whether a Marginal Employment Subsidy program (MES) is effective in reducing the length of unemployment spells. Our test is constructed in such a way as to isolate the direct effect of the MES from the business cycle effect (i.e. the variation in unemployment that would have normally occurred in the absence of the program). Specifically, we estimate a Markov chain duration model with time-varying covariates and we test if eligibility for an MES increases the hazard rate of leaving unemployment. One of the time-varying covariates is an index of macro-economic performance that controls for the variation in the hazard rate due to business cycle fluctuations. The net effect of the MES offered by the Agenzia del Lavoro of Trento, Italy, is shown to be significantly positive: the Marginal Employment Subsidy program increases the re-employment probability and reduces the expected duration of unemployment by twenty one months.     

THE EFFECT OF BENEFIT SANCTIONS ON THE DURATION OF UNEMPLOYMENT

This paper investigates the effectiveness of unemployment benefit sanctions in reducing unemployment duration. Swiss data on benefit sanctions allow us to separate the effect of a warning that a person is not complying with eligibility requirements from the effect of the actual enforcement of a benefit sanction. Moreover, public employment services are given substantial leeway in setting the monitoring intensity. Results indicate that both warning and enforcement have a positive effect on the exit rate out of unemployment, and that increasing the monitoring intensity reduces the duration of unemployment of the nonsanctioned. (JEL: J64, J65, J68)     

Threshold Autoregression with a Unit Root

This paper develops an asymptotic theory of inference for an unrestricted two‐regime threshold autoregressive (TAR) model with an autoregressive unit root. We find that the asymptotic null distribution of Wald tests for a threshold are nonstandard and different from the stationary case, and suggest basing inference on a bootstrap approximation. We also study the asymptotic null distributions of tests for an autoregressive unit root, and find that they are nonstandard and dependent on the presence of a threshold effect. We propose both asymptotic and bootstrap‐based tests. These tests and distribution theory allow for the joint consideration of nonlinearity (thresholds) and nonstationary (unit roots). Our limit theory is based on a new set of tools that combine unit root asymptotics with empirical process methods. We work with a particular two‐parameter empirical process that converges weakly to a two‐parameter Brownian motion. Our limit distributions involve stochastic integrals with respect to this two‐parameter process. This theory is entirely new and may find applications in other contexts. We illustrate the methods with an application to the U.S. monthly unemployment rate. We find strong evidence of a threshold effect. The point estimates suggest that the threshold effect is in the short‐run dynamics, rather than in the dominate root. While the conventional ADF test for a unit root is insignificant, our TAR unit root tests are arguably significant. The evidence is quite strong that the unemployment rate is not a unit root process, and there is considerable evidence that the series is a stationary TAR process.     

Low‐wage Jobs — Springboard to High‐paid Ones?

We examine whether low‐paid jobs have an effect on the probability that unemployed persons obtain better‐paid jobs in the future (springboard effect). We make use of data from the German Socio‐Economic Panel (SOEP) and apply a dynamic random effects bivariate probit model. Our results suggest that low‐wage jobs can act as springboards to better‐paid work. The improvement of the chance to obtain a high‐wage job by accepting low‐paid work is particularly large for less‐skilled persons and for individuals who experienced longer periods of unemployment. Low‐paid work is less beneficial if the job is associated with a low social status.     

Crime,Search, and Ex‐offenders’ Accessibility to Labor Markets

Rehabilitation for ex‐offenders has positive (e.g. more production) and negative (e.g. more crime) effects on society. We investigate the effect of rehabilitation on criminal behavior and the labor market using a search model. In the case where ex‐offenders cannot join the labor market, promoting rehabilitation for them may reduce crime. In such a case, the equilibrium allocation may be inefficient. Moreover, under the Hosios condition, equilibrium labor market tightness is lower than the efficient outcome because of crime, as the crime option raises the value of unemployed workers. Because this option works as a negative externality on matched firms, equilibrium tightness is lower than the optimal level.     

THE JOINT DESIGN OF UNEMPLOYMENT INSURANCE AND EMPLOYMENT PROTECTION: A FIRST PASS

Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk‐averse workers, risk‐neutral firms, and random shocks to productivity. We show that, in the “first best,”unemployment insurance comes with employment protection—in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex post wage bargaining, and ex ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.