Employment Policy and Labor MarketsIn 2001, the US economy entered a seventh consecutive year of expansion and unemployment rates were at 30-year lows. Yet, not all shared in the employment boom. Levy Institute research has found that between 1995 and 1999, only 217,000 jobs—of the more than 13 million created—went to the half of the population holding a high school degree or less; the remaining jobs went to those with at least some college education. Today, in an ever-tightening economy, there are more than 16 million unemployed—10 percent of the labor force—and four job seekers for each available job. In addition, there are roughly 17 million full-time workers whose wages place them at or below the official poverty line. Clearly, there is room for improvement on the jobs front.
In response to this problem, Levy Institute scholars have proposed a full-employment, or job opportunity, program that would employ all who are willing to work and increase flexibility between economic sectors, thereby lowering the social and economic costs of unemployment. This program is preferable to proposed alternatives such as a reduction of the workweek or employment subsidies, neither of which is sure to raise employment—and both may have serious side effects. Other labor market policies studied by Levy Institute scholars include the effects of technology on earnings, and the effects of an increase in the minimum wage on hiring practices and earnings.
Working Paper No. 789 | March 2014
The Road Not Taken
It is common knowledge that John Maynard Keynes advocated bold government action to deal with recessions and unemployment. What is not commonly known is that modern “Keynesian policies” bear little, if any, resemblance to the policy measures Keynes himself believed would guarantee true full employment over the long run. This paper corrects this misconception and outlines “the road not taken”; that is, the long-term program for full employment found in Keynes’s writings and elaborated on by others in works that are missing from mainstream textbooks and policy initiatives. The analysis herein focuses on why the private sector ordinarily fails to produce full employment, even during strong expansions and in the presence of strong government action. It articulates the reasons why the job of the policymaker is, not to “nudge” private firms to create jobs for all, but to do so itself directly as a matter of last resort. This paper discusses various designs of direct job creation policies that answer Keynes’s call for long-run full employment policies.Download:Associated Program:Author(s):Related Topic(s):
In the Media | January 2014
Rania AntonopoulosKathimerini, January 31, 2014. All Rights Reserved.
The responses to unemployment by the last three governments [in Greece] have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of lack of understanding of reality.
The Prime Minister recently, on January 29, told us that unemployment is a "sneaky enemy" and proceeded to announce measures to tackle the problem. He also indicated that "we do not promise things we cannot do, and we say no to populism and fine words." The goal of the proposed measures, we heard, is to create 440,000 "work opportunities" of which 240,000 will target the unemployed 15–24 years of age, with no prior work experience. The announced measures totaling 1.4 billion Euro, will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.
Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector, an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 to 60 years of age. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old, who have no prior work experience. These unemployed, will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates in hiring 90,000 unemployed from households who have no employed person, who will work in community service projects in the public sector and local government.
Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee nonreplacement of existing positions in the private and public sector (really, is there a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility towards the citizens that have been left without a job. But, appearances can be deceiving.
Let's start with the obvious. If we divide the 1.4 billion euros with 440,000 job opportunities to be created in the next two years, we arrive at an average of 220,000, now unemployed, future employed per year, who will receive a total of 3,182 euros during one year. Namely, 265 euros per month. So these jobs offer underemployment, or starvation wages or both. Job opportunities? These interventions in reality provide employment for four to five months. Then what?
But, also, there was nothing new proposed. The present government, on January 10, 2013 had presented us with a National Action Plan for Youth Employment. The "Action Plan" consisted essentially of a compilation of already existing interventions, which, it should be noted, had already received miserably failing grades by ELIAMEP, through a study that they produced at the request of the National Bank of Greece. Mr. Samaras suggested the same and identical measures. If these “actions” have not worked in the past, why should we expect them to help now? This is important, because at this difficult hour it would be wise not to throw out the window EU funds. At the end, if the aim is to provide income support, let’s expand unemployment coverage, and not pretend we are creating jobs.
But the essential problem is that the proposed action plan is based on the wrong diagnosis. First, its focus is on the young unemployed, and secondly, it mistakenly identifies the causes of youth unemployment in "employability"–namely, inthe absence of knowledge, experience, and seniority.
Let's start with the second question first. The proposal carries a message that youth unemployment will fought through the acquisition and improvement of knowledge on the one hand (through VTC), and practical experience in temporary jobs in private sector companies. Success should be evaluated by the ability of participants to find a permanent job after termination of participation in these programs. Do we then expect the young graduates to find a job? how many new jobs were announced in 2013? What has changed since 2008 is demand for labor due to the tremendous reduction of GDP and not the quality of the labor supply of young people. Unemployment has sky rocketed [from 7.7 to over 27%] due to austerity, lack of liquidity SMEs face, and the rapid, albeit legal, reduction of salaries and pensions. These are more or less commonly accepted facts. 2008 employees aged 15–24 included approximately 270,300 young aged workers, when in 2013 there were only 125,300 (a 145,000 reduction). Similarly, today the total number of unemployed people aged 15–24 is approximately 178,500—in 2008 there were 72,300 (an increase of 106,200). The numbers speak for themselves.
Measures of "improving knowledge" will not do, not when our well-educated graduates migrate abroad massively. These "solutions" are of European origin and are ineffective because the main problem we face is that the private sector has shrunk and this has produced a plummeting of demand of the existing workforce due to the depth and duration of the recession—the problem is not lack of quality and skills of the labor force.
Let us now consider the first issue, the problem of youth unemployment. Indeed, the unemployment rate is very high among the youth and especially for 15–24 years, from 22.1% in 2008 to 57.2% today. But among the 1.3 billion unemployed (average of the first three quarter of 2013) the 1,186,000 are over 25 years old. According to the Hellenic Statistical Authority, all unemployed aged 15–24 amounted to 178,500. Recall that the second pillar consists of 240,000 unemployed young people aged up to 24 years! All the newcomers put together, among the 15–24 years of age, are less than 130.00. Even if we include new entrants ages 25–29, we reach 225,000 persons. The numbers are not consistent, at least not for the youth category of 15–24. Unless the same young person who participates one month in a training program and is then engaged in the private sector represents two “jobs.”
The age targeted measures are ill conceived, as is the focus on employability. Most tragic of all is that long-term unemployed by now hits approximately 900,000 unemployed, of which 844,000 are not in the category of “youth.” Among them, 224,100 have been out of paid work for more than 48 months (4 years) and an additional 317.00 unemployed, for 24–47 months. For all these long-term unemployed, including those who have exhausted their resources and cannot pay even their electricity bill, for the 777, 000 unemployed who have a high school education level or lower, the announcement of Mr. Samaras highlights that there will be some lucky 200,000 young and more mature workers (440,000 minus 240, 000 people) that will be offered an “employment opportunity” for a few months out of a year in the private or public sector, receiving the meager earnings mentioned earlier.
What must be urgently understood is that although the economy is now approaching the area of balancing the internal and external balance of payments and the pressure on further depressing the economy gradually slows down, this does not automatically lead to recovery. The economy can remain at frighteningly low production levels, high unemployment and income inequality of catastrophic dimensions. Recovery needs high and sustained private and public investment rates, and certainly gradual relief from the austerity measures. But let us remember that the decade before the crisis, with on average GDP growth about 4%, the economy created each year, on average, 55–60 thousand new jobs. Even if the growth rate returns to precrisis levels, at 4%, generating even 50–60 thousand new jobs per year, to reach the employment levels of 1998 to 2008 will be impossible in the near future; the figures for unemployment are so high, that the next decade will be 'lost', including for people sent to educational training centers.
It is reasonable to ask, What can the poor government do when it has to deal with the Troika "requirements" of the one hand and the NSRF European Unon funds on the other, which are focused on these specific "actions"? Negotiate hard and convince their "partners" that the yardstick for introducing or maintaining conditionality measures, structural and otherwise, at this time is whether they increase unemployed or not; and point out to other partners that these "actions" against unemployment are incompatible with the Greek reality—that the "Youth Guarantee" and the rest should be channeled to other types of interventions.
The time has come to stop recycling the same distorted views. This crisis requires urgently a custom tailored Greek New Deal, which should last for at least the next three years. That is, the extension of a radically reorganized job guarantee program*, a community-based program of "koinofelis ergasia" not for five months but for 11 months per year, not for the 50,000–90,000 jobs for the unemployed but 440,000 real year-round jobs. As for what it will cost and where will we find the money, I reserve the right to provide relevant information next month through a study of the Levy Institute in cooperation with INE / GSEE [General Confederation of Trade Unions]. There is a solution, but it requires getting rid of current obsessions and to not follow the beaten track. Whether the political will of the current government to do so exists, is another matter.
*The Levy Institute was instrumental in proposing a Job Guarantee policy for Greece, which was adopted by the Ministry of Labor in 2011, as a pilot program for 55,000 unemployed. It was rolled out in 2012 and was run through the NGO sector in collaboration with local and community governing bodies. For a background document that includes guidance notes on how best to design and implement such an initiative see http://www.levyinstitute.org/publications/?docid=1458.
Policy Note 2014/1 | January 2014The job guarantee is a proposal that provides greater macroeconomic stability and secures a fundamental human right. Despite the economic and moral merits of this policy, often the program is rejected because of concerns about its administration. How would the program be implemented? Who will create the jobs? Can work be found for every unemployed individual who wishes to work? This policy note addresses these concerns by elaborating on a proposal for the United States that would run the job guarantee through the social enterprise sector, which includes traditional nonprofit organizations and emerging nonprofit social entrepreneurial ventures.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 787 | January 2014
Case Studies from Latin America
This paper analyzes the economic impact of unions on productivity in the manufacturing sector across six Latin American countries: Argentina, Bolivia, Chile, Mexico, Panama, and Uruguay. Using an augmented Cobb-Douglas production function, the paper finds that unions have positive, but mostly small, effects on productivity, with the exception of Argentina, with a large negative effect, and Bolivia, with no effect. An analysis on profitability shows that, in most cases, the positive productivity effects barely offset higher union compensation, and that unions are negatively related to investment in capital and R & D. Different explanations for these effects are discussed.Download:Associated Program:Author(s):Related Topic(s):
Working Paper No. 774 | September 2013
Turkish economic growth has been characterized by periodic crises since financial liberalization reforms were enacted in the early 1990s. Given the phenomenally low female labor force participation rate in Turkey (one of the lowest in the world) and the limited scope of the country’s unemployment insurance scheme, there appears to be ample room for a female added worker effect as a household strategy against unemployment shocks under economic crises. Using micro data from household labor force surveys for the 2004–10 period, we examine the extent to which an unemployment shock to the primary male earner instigates female members of the household to move from nonparticipant status to labor market participation.
This paper differs from the earlier few studies on the added worker effect in Turkey in a number of aspects. First, rather than simply basing the analysis on a static association between women’s observed participation status and men’s observed unemployment status in the survey period, we explore whether there is a dynamic relationship between transitions of women and men across labor market states. To do this, we make use of a question introduced to the Household Labor Force Survey in 2004 regarding the survey respondent’s labor market status in the previous year. This allows us to explore transitions by female members of households from nonparticipant status in the previous year to participant status in the current year, in response to male members making a transition from employed in the previous period to unemployed in the current period. We explore whether and to what extent the primary male earner’s move from employed to unemployed status determines the probability of married or single female full-time homemakers entering the labor market. We estimate the marginal effect of the unemployment shock on labor market transition probability for the overall sample as well as for different groups of women, and hence demonstrate that the effect varies widely depending on the particular characteristics of the woman—for example, her education level, age, urban/rural residence, and marital and parental status.
We find that at the micro level an unemployment shock to the household increases the probability of a female homemaker entering the labor market by 6–8 percent. The marginal effects vary substantially across different groups of women by age, rural or urban residence, and education. For instance, a household unemployment shock increases by up to 34 percent the probability that a university graduate homemaker in the 20–45 age group will enter the labor market; for a high school graduate the probability drops to 17 percent, while for her counterpart with a secondary education the marginal effect is only 7 percent.
Our estimate of the total (weighted) number of female added workers in the crisis years shows that only around 9 percent of the homemakers in households experiencing an unemployment shock enter the labor market. Hence we conclude that, while some households experiencing unemployment shocks do use the added worker effect as a coping strategy, this corresponds to a relatively small share. We attribute this finding to the deeply embedded structural constraints against female labor market participation in Turkey.Download:Associated Program:Author(s):Serkan Değirmenci İpek Ilkkaracan
In the Media | May 2013
Interview by Kostas KalloniatisEleftheritypia, May 19, 2013. All Rights Reserved.
Youth unemployment is just one part of the wider problem of unemployment and of course requires specialized interventions to tackle it, according to Rania Antonopoulou, professor at Bard College, director of the research division for gender equality of the Levy Economics Institute, and associate researcher with the Labour Institute of the GSEE.
Antonopoulos considers largely inadequate, if not hypocritical, the recent interest of the European political leadership in youth unemployment and considers the motivation to be in part fear of the risk of social explosion (recent media statements by Draghi, Barroso Leta, etc., provide support for this claim).
She informs us that in the eurozone in 2012 there were 3.4 million unemployed young people aged 15–24, but roughly four times more unemployed were between 25 and 54 years old (12.6 million), with the result that young people constitute 27 percent of this total unemployed (up to 54 years old). In Greece, respectively, young unemployed stood at 173,000 persons in 2012, as compared to 950,000 unemployed aged 25–54 years, comprising a mere 18.2 percent.
Antonopoulos underlines a crucial difference, especially for policy, between:
A. the unemployment rate: for youth it was 55.3 percent in Greece in 2012; namely, for every 100 employed and unemployed young people, 55.3 were unemployed, when for the 24–54 age working age population group this rate was 23.4 percent;
B. the ratio of unemployment to the total population of a certain age group, which includes everyone (the employed, the unemployed, and those not looking for work): for the young in Greece was only 16.2 percent in 2012 due to the fact that the vast majority are students, soldiers, etc. (i.e, a rate that is much less than the rate of unemployment) when the comparable number for ages 24–54 years was 20 percent ( much closer to their corresponding unemployment rate above); and
C. the share of the unemployed by age group among the total number of persons that are unemployed, which for the young unemployed in Greece amounted in 2012 to 14.4 percent, which means that the remaining 85.6 percent of the unemployed were 25 years of age or older.
Now, for Mr. Barroso and Co. the most important criterion is the unemployment rate. But for Ms. Antonopoulos the most important measure for guiding policy is the last measure, the share by age composition of the unemployed.
With all this, Antonopoulos does not claim that there is no need to pay attention to youth unemployment or university graduates seeking their first job. Instead, she proposes that equal attention, perhaps more attention, needs to be directed to those who lost their jobs and are not as young.
Therefore, she believes that the issue of unemployment in general needs to be addressed with anti-austerity pro-growth policies based on domestic demand stimulus, and that a focus in this particular period exclusively on youth unemployment based on erroneous calculations or political considerations (supposedly in response to the lost generation) is misguided. Priority should be given to the creation of an employer-of-last-resort policy—like the New Deal—capable of designing employment programs that match the capabilities of the unemployed to social needs, with the assistance of the trade unions, local communities and their elected governments, and the unemployed themselves.
For youth unemployment, she indicated that specialized interventions along the lines of current interventions in Sweden and Finland are appropriate.
Book Series | April 2013
By Hyman P. Minsky | Preface by Dimitri B. Papadimitriou | Introduction by L. Randall WrayAlthough Hyman P. Minsky is best known for his ideas about financial instability, he was equally concerned with the question of how to create a stable economy that puts an end to poverty for all who are willing and able to work. This collection of Minsky’s writing spans almost three decades of his published and previously unpublished work on the necessity of combating poverty through full employment policies—through job creation, not welfare.
Minsky was an American economist who studied under Joseph Schumpeter and Wassily Leontief. He taught economics at Washington University, the University of California–Berkeley, Brown University, and Harvard University. Minsky joined the Levy Economics Institute of Bard College as a distinguished scholar in 1990, where he continued his research and writing until a few months before his death in October 1996. His two seminal books were Stabilizing an Unstable Economy and John Maynard Keynes, both of which were reissued by the Levy Institute in 2008.
Minsky held a B.S. in mathematics from the University of Chicago (1941) and an M.P.A. (1947) and a Ph.D. in economics (1954) from Harvard. He was a recipient in 1996 of the Veblen-Commons Award, given by the Association for Evolutionary Economics in recognition of his exemplary standards of scholarship, teaching, public service, and research in the field of evolutionary institutional economics.
This book was made possible in part through the generous support of the Ford Foundation and Andrew Sheng of the Fung Global Institute.
Published By: Levy Economics Institute of Bard College
In the Media | April 2013
By Dimitri B. PapadimitriouLos Angeles Times, April 5, 2013. All Rights Reserved.
The government can and should increase the deficit to return us to prosperity. Without such outlays we can’t get enough GDP growth to seriously attack unemployment.
Just before the congressional spring break, a Senate budget proposal to decrease, but not eliminate, the deficit over 10 years was denounced as “pro debt” by an Alabama senator. It was the kind of proud and loud anti-deficit rhetoric that, no matter how nonsensical, plays nicely into Washington group-think on the subject.
The deficit has arguably gained the distinction of being the single most widely misunderstood public policy issue in America. Just 6% (6!) of respondents in a recent poll correctly stated that it had been shrinking, which has in fact been the case for several years, while 10 times more, 62%, wrongly believed that it’s been getting bigger.
Despite prevailing notions in the capital and throughout the nation, those of us at the Levy Economics Institute—along with many other analysts and economists—have concluded that the deficit should be increased.
Why add to the deficit right now? Jobs. Our economic models clearly show that without increased government outlays we’ll be unable to generate enough GDP growth to seriously attack unemployment. If we tried to balance the budget through tax hikes, our still-recovering economy would be hurt. That leaves a temporarily bigger deficit as an important option.
A mutation in the link between growth and jobs makes the issue urgent. While we are seeing some economic growth, the unemployment rate is not responding as strongly to the gains as it did in the past.
This slow job growth—today’s “jobless recovery”—isn’t an outlier. It’s a phenomenon that has been increasing over the last three decades, with jobs coming back more and more slowly after a downturn, even when GDP is increasing. The weak employment response has been an almost straight-line trend for more than 30 years.
Our institute’s newest econometric models show that each 1% boost in the GDP today will create, roughly, only a third as much improvement to the unemployment rate as the same 1% rise did in the late 1970s.
Traditionally, we’ve assumed that GDP growth would be followed by an employment surge. The break in that link is now very clear. It’s especially worrisome this year, with only a small GDP rise universally anticipated.
The Federal Reserve, for one, just reduced its growth outlook to 2.8% at most for 2013. The shallow recovery we’re seeing may indeed continue through 2014 and beyond. Since employment now consistently lags well behind GDP, we’ll have a long slog before we reach pre-crisis unemployment levels (below 4.6%). Some Federal Reserve officials believe it might take three years just to get from today’s 7.7% down to 6.5%. Full employment would still be nowhere in sight.
The quantitative data are telling us that without a stimulus, we can’t expect a strong employment lift. But instead of stimulus, we’re devising federal budgets that cut spending and lay off workers. The sequester is expected to depress GDP growth by perhaps half a percentage point—when we know that more growth than ever will be needed to raise employment—and cost anywhere from 700,000 to more than 1 million jobs.
Slower government spending is one reason that post-recession growth has been below par compared with other recoveries, Fed Vice Chair Janet Yellen has argued. As government outlays and employment have shrunk, the contribution of public funds to national growth has also fallen. By our estimates, that contribution now stands at about zero. That’s another data point indicating that federal deficits need to be increased.
To better understand the changing relationship between growth and jobs, the Levy Institute recently looked at three scenarios through 2016: what the results might be of a small, medium or large stimulus. A strong stimulus was clearly the most effective option, since it had a powerful, positive influence on employment growth and, in the long term, on deficit reduction. Of course, that route is completely unfeasible in the current political climate. But we saw that even a small amount of deficit spending could help put the recovery on track if it were combined with a mix of private investment, increased exports and good policy alternatives.
That points toward a way forward. Increasing the deficit while our economy is fragile is not “pro deficit,” any more than a family with a 30-year home mortgage is “pro debt.” To reclaim a phrase that deficit hawks have tried to make their own, it is “sensible and serious.” The federal government can run a deficit, as it almost always has, to help the nation return to prosperity.
With our new understanding of the fraying tie between GDP growth and jobs, we know that millions of Americans are on course for an agonizingly slow march out of joblessness unless we make a move. The nature of slumps and recoveries has changed, and the policies to manage them need to change too.
Dimitri B. Papadimitriou is president of the Levy Economics Institute of Bard College and executive vice president of Bard.