Research Programs

Employment Policy and Labor Markets

Employment Policy and Labor Markets

In 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 almost nine million unemployed—5.6 percent of the labor force—and four job seekers for each available job. In addition, there are roughly 10 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.



Program Publications

  • Working Paper No. 895 | August 2017
    This paper examines two key aspects of unemployment—its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention—preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.
     

  • One-Pager No. 53 | February 2017
    Demographics or Lack of Jobs?

    Aging demographics, “social shifts,” and other supply-side and institutional factors have commonly been blamed for the fall in the US labor force participation rate. However, depressed labor force participation for prime-age workers is likely due to a combination of insufficient aggregate demand, weak job creation, and stagnant wages—all of which have been persistent problems over the past three or four decades. Although insufficient aggregate demand is the main problem, general “Keynesian” pump priming is not the answer. Stimulus needs to take the form of targeted job creation to tighten labor markets for less-skilled workers.

  • Public Policy Brief No. 142 | February 2017

    Flavia Dantas and L. Randall Wray argue that the emerging conventional wisdom—that the US economy has reached full employment—is flawed. The unemployment rate is not providing an accurate picture of the health of the labor market, and the common narrative attributing shrinking labor force engagement to aging demographics is overstated. Instead, falling prime-age participation rates are the symptom of a structural inadequacy of aggregate demand—a problem of insufficient job creation and stagnant incomes that conventional public policy remedies have been unable to address. The solution to our long-running secular stagnation requires targeted, direct job creation for those at the bottom of the income scale.

  • In the Media | January 2017
    By Claire Connelly
    ABC News, January 18, 2017. All Rights Reserved.

    Creating a universal basic income as a means of addressing unemployment and productivity problems has become the topic du-jour as workers become increasingly separated from the means of production, with even modest salaries failing to cover the cost of living. 

    Consequently, Australian taxpayers have had to take on a greater burden of debt to support themselves....

    Read more: http://www.abc.net.au/news/2017-01-19/universal-basic-income-vs-job-guarantee/8187688  
  • Working Paper No. 882 | January 2017
    A Distributional Analysis of the Care Economy in Turkey

    This paper examines the aggregate and gender employment impact of expanding the early childhood care and preschool education (ECCPE) sector in Turkey and compares it to the expansion of the construction sector. The authors’ methodology combines input-output analysis with a statistical microsimulation approach. Their findings suggest that the expansion of the ECCPE sector creates more jobs and does so in a more gender-equitable way than an expansion of the construction sector. In particular, it narrows the gender employment and earnings gaps, generates more decent jobs, and achieves greater short-run fiscal sustainability.

  • In the Media | August 2016
    RT America, August 20, 2016. All Rights Reserved.

    In this interview on "Boom Bust" Research Associate Pavlina R. Tcherneva advocates in favor of a public job guarantee program over universal basic income as a means of alleviating poverty and stabilizing the business cycle. (Interview begins at 15:00.) 

    Watch here:
    https://www.rt.com/shows/boom-bust/356572-louisiana-crisis-turkey-economy/ 
  • In the Media | August 2016
    RT America TV, August 9, 2016. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva appears on "Boom Bust" to discuss sluggish growth, labor markets, and her proposal for a job guarantee. 

    Watch here: https://www.youtube.com/watch?v=GvFliCk1osE#t=13m15s  
  • Policy Note 2016/3 | August 2016
    In this policy note, Research Scholar Fernando Rios-Avila and Gustavo Canavire-Bacarreza, Universidad EAFIT, observe that immigration in the United States has a small but statistically significant impact on the labor market behavior of native-born unemployed workers. Their chances of transitioning from unemployment to employment are not affected by the share of immigrants in their job markets, but the native-born unemployed are more likely to leave the labor force when living in areas with a higher relative concentration of immigrants. Three additional results of the study shed light on what might be contributing to this higher rate of labor market exit, with each pointing to the potential role of expectations in creating a discouraged worker effect among the native-born unemployed in high-immigration states. 

  • Working Paper No. 870 | August 2016
    The Effect of Immigration on Unemployment Transitions of Native-born Workers in the United States

    Although one would expect the unemployed to be the population most likely affected by immigration, most of the studies have concentrated on investigating the effects immigration has on the employed population. Little is known of the effects of immigration on labor market transitions out of unemployment. Using the basic monthly Current Population Survey from 2001–13 we match data for individuals who were interviewed in two consecutive months and identify workers who transition out of unemployment. We employ a multinomial model to examine the effects of immigration on the transition out of unemployment, using state-level immigration statistics. The results suggest that immigration does not affect the probabilities of native-born workers finding a job. Instead, we find that immigration is associated with smaller probabilities of remaining unemployed, but it is also associated with higher probabilities of workers leaving the labor force. This effect impacts mostly young and less educated people.

  • In the Media | July 2016
    Pavlina R. Tcherneva
    The New York Times, July 11, 2016. All Rights Reserved.

    Though job growth surged in June, by and large, this recovery has been the slowest in postwar history and 7.8 million people continue to look, unsuccessfully, for work.

    There is nothing inevitable or natural about jobless recoveries....

    Read more:
    http://www.nytimes.com/roomfordebate/2016/07/11/are-we-ready-for-the-next-recession/keep-unemployment-from-mushrooming-with-preventative-policies
     
  • In the Media | June 2016
    Bloomberg, June 7, 2016. All Rights Reserved.

    Research Associate Pavlina R. Tcherneva argues against a universal basic income policy and in favor of a job guarantee in this interview with Bloomberg’s Joe Weisenthal. Click here for the video.
  • Policy Note 2015/7 | November 2015
    Demographic Trends in US Labor Force Participation

    US labor force participation has continued to fall in the wake of the Great Recession. Improvements in the US unemployment rate reflect the fact that more people are falling out of the labor force, not a stronger labor market. Controlling for changes in the demographic makeup of the workforce (i.e., gender, age, education, and race), Research Scholar Fernando Rios-Avila investigates trends in labor force participation across and within groups between 1989 and 2013. He finds that not all groups have lost ground equally, while participation rates for some groups have actually increased. Understanding these patterns in labor force participation is a necessary first step toward crafting effective policy responses.

  • This addendum to our June 2014 report, “Responding to the Unemployment Challenge: A Job Guarantee Proposal for Greece,” updates labor market data through 2014Q3 and identifies emerging employment and unemployment trends. The overarching aim of the report, the outcome of a study undertaken in 2013 by the Levy Institute in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour, is to provide policymakers and the general public research-based evidence of the macroeconomic and employment effects of a large-scale direct job creation program in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010 as a condition of the loans made to Greece by its eurozone partners. 

  • Public Policy Brief No. 138 | October 2014
    To mobilize Greece’s severely underemployed labor potential and confront the social and economic dangers of persistent unemployment, we propose the immediate implementation of a direct public benefit job creation program—a Greek “New Deal.” The Job Guarantee (JG) program would offer the unemployed jobs, at a minimum wage, on work projects providing public goods and services. This policy would have substantial positive economic impacts in terms of output and employment, and when newly accrued tax revenue is taken into account, which substantially reduces the net cost of the program, it makes for a comparatively modest fiscal stimulus. At a net cost of roughly 1 percent to 1.2 percent of GDP (depending on the wage level offered), a midrange JG program featuring the direct creation of 300,000 jobs has the potential to reduce the unemployed population by a third or more, once indirect employment effects are taken into account. And our research indicates that the policy would do all this while reducing Greece’s debt-to-GDP ratio—which leaves little room for excuses.

  • This report presents the findings from a study undertaken by the Levy Institute in 2013 in collaboration with the Observatory of Economic and Social Developments of the Labour Institute of the Greek General Confederation of Labour. It uses as background the 2011 Levy Institute study “Direct Job Creation for Turbulent Times in Greece,” which focused on the need for direct job creation to address rising unemployment. The focus in this report, however, is different. Here, the aim is to make available to policymakers and the broader public research-based evidence of the macroeconomic and employment effects of a large-scale program of direct job creation program—a cost-effective and proven policy response. The ultimate goal of this undertaking is to draw urgently needed attention to the worsening levels of unemployment in Greece, and to invite critical rethinking of the austerity-driven macro policy instituted in 2010.

  • In the Media | April 2014
    By Victoria MacGrane
    The Wall Street Journal, April 9, 2014. All Rights Reserved.

    Federal Reserve Governor Daniel Tarullo on Wednesday said policy makers should proceed cautiously in judging when inflationary pressures are building in the economy, given uncertainty that surrounds just how much slack remains in the labor market.

    Mr. Tarullo placed himself in the camp of Fed Chairwoman Janet Yellen, saying he believes the labor market is still operating well short of its potential and associating himself with her March 31 speech explaining the reasons why.

    Given there is some debate over how to measure labor market slack, “we are well advised to proceed pragmatically,” he said in a dinnertime speech prepared for delivery at a conference organized by the Levy Institute of Bard College.

    He stressed Fed officials should await actual evidence that labor markets had tightened enough to trigger inflationary pressures that could push inflation above the Fed’s 2% inflation target. The Commerce Department’s personal consumption expenditures price index, the Fed’s favored measure of inflation, was up 0.9% in February from a year earlier. The Labor Department’s consumer price index, an alternative measure, was up 1.1%.

    “But we should not rush to act preemptively in anticipation of such pressures based on arguments about the potential increase in structural unemployment in recent years,” he said.

    There is a vigorous debate at the central bank and among economists generally over the extent of remaining slack in the labor market. Minutes from the Fed’s March 18-19 policy meeting released Wednesday showed that while officials generally agreed slack persisted, they disagreed about how much and how well the unemployment rate reflects the degree of slack.

    In her March 31 speech, Ms. Yellen pointed to several factors beyond the jobless rate that suggest the labor market is still quite weak, including the large number of long-term jobless and the seven million Americans who are working part-time but would prefer full-time jobs.

    Mr. Tarullo suggested he’s not worried economic growth will suddenly take off and leave the Fed flat-footed and fighting rising inflation. “The issue of how much structural damage has been suffered by the labor market is of less immediate concern today in shaping monetary policy than it might have been had we experienced a period of rapid growth during the recovery,” he said.

    In light of the economy’s modest performance since the end of the recession, “it seems less likely that we will experience a growth spurt in the next couple of years that would engender concerns about rapid wage pressures and changes in inflation expectations,” Mr. Tarullo said.

    Mr. Tarullo’s comments came within the context of a speech raising concerns about “troubling” long-term trends in the U.S. economy, including falling productivity growth and rising inequality.

    The Fed’s efforts to battle recession help lay the groundwork for a stronger, more dynamic economy, Mr. Tarullo said. “But there are limits to what monetary policy can do in counteracting” the longer-term trends he is worried about.

    Mr. Tarullo said the federal government could address some of the challenges through investment, especially in ways that help “those who have seen their share of the economic pie shrink.” Early childhood education, job training programs, infrastructure and research are areas that could boost the long-term prospects for the U.S. economy, said Mr. Tarullo. 
  • 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.

  • In the Media | January 2014
    Rania Antonopoulos
    Kathimerini, 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 2014
    The 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. 

  • 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.

  • 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.

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    Serkan Değirmenci İpek Ilkkaracan

  • In the Media | May 2013
    Interview by Kostas Kalloniatis
    Eleftheritypia, 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 Wray
    Although 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. Papadimitriou
    Los 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.
  • In the Media | January 2013

    Daily Freeman, January 7, 2013. All Rights Reserved.

    ANNANDALE-ON-HUDSON, N.Y. — The Association for Social Economics  has awarded Pavlina R. Tcherneva, research associate at the Levy Economics Institute of Bard College and assistant professor of economics at Bard, the 2013 Helen Potter Prize.

    The prize was created and endowed by the Association for Social Economics in 1975 and is awarded each year to a promising scholar of social economics for authoring the best article in The Review of Social Economy. Tcherneva is being awarded the prize for her article “On-the-spot Employment: Keynes’s Approach to Full Employment and Economic Transformation” published in the March 2012 issue.

    She will be presented with the award at the Association for Social Economics  presidential breakfast to be held in San Diego, Calif., this month. For more information, visit www.socialeconomics.org.

    Tcherneva conducts research in the fields of modern monetary theory and public policy, and has collaborated with policymakers from Argentina, Bulgaria, China, Turkey, and the United States on developing and evaluating various job-creation programs.

    Her current research examines the nexus between monetary and fiscal policies under sovereign currency regimes and the macroeconomic merits of alternative stabilization programs. She has also examined the role, nature, and relative effectiveness of the Federal Reserve’s alternative monetary policies and the American Recovery and Reinvestment Act during the Great Recession.

  • Working Paper No. 732 | September 2012
    The Employer of Last Resort as an Institution for Change

    Over the past decade and a half the ability of the employer-of-last-resort (ELR) proposal to deliver full employment and price stability has been discussed at length in the literature. A different issue has received relatively little attention—namely, the concern that even when the ELR produces these macroeconomic benefits, it does so by offering “low-paying” “dead-end” jobs, further denigrating the unemployed. In this context, the important buffer stock feature of the ELR is misconstrued as a hydraulic mechanism that prioritizes macroeconomic stability over the program’s benefits to the unemployed.

    This paper argues that the two objectives are not mutually exclusive by revisiting Argentina’s experience with Plan Jefes and its subsequent reform. Plan Jefes is the only direct job creation program in the world specifically modeled after the modern ELR proposal developed in the United States. With respect to macroeconomic stability, the paper reviews how it exhibits some of the key stabilizing features of ELR that have been postulated in the literature, even though it was not designed as an unconditional job guarantee. Plan Jefes also illustrated that public employment programs can have a transformative impact on persistent socioeconomic problems such as poverty and gender disparity. Women—by far the largest group of program beneficiaries—report key benefits to their communities, families, children, and (importantly) themselves from participation in Jefes.

    Argentina’s experience shows that direct job creation programs that offer employment at a base wage can have the unique capacity to empower and undermine prevailing structures that produce and reproduce poverty and gender disparities. Because the latter two problems are multidimensional, the ELR cannot be treated as a panacea, but rather as an important policy tool that remedies some of the most entrenched and resilient causes of poverty and gender inequality. The paper examines survey evidence based on narratives by female participants in Jefes to assess these potentially transformative aspects of the ELR proposal.

  • In the Media | September 2012
    By Brian Ianieri

    Press of Atlantic City, September 24, 2012. All Rights Reserved.

    The number of public workers and the amount of their wages in southern New Jersey fell in 2011, ending nearly a decade of steady increases as federal, state and local governments shed employees, recently released U.S. Bureau of Labor Statistics data show.

    Government jobs in Atlantic, Cape May, Cumberland and Ocean counties fell 6 percent in 2011 from the prior year, eliminating nearly 1,700 positions at all levels of government, according to the preliminary data.

    The role of government as an employer has been redefined following the recession, as budget-strapped municipalities and states deal with plummeting revenues, dropping property values and weak economies.

    Monetary savings (about $23 million less in wages) have resulted, but also higher unemployment in southern New Jersey, which has the weakest labor market in the state. Cumberland and Atlantic counties had New Jersey’s highest unemployment rates this summer.

    "I have members right now saying, ‘Can you get me a job?’ And there's no new work,” said Marcus King, president of Egg Harbor City-based Teamsters Local 331 union, which represents various public workers at local and county jobs in Cape May and Atlantic counties, including Hamilton Township, Linwood, and Egg Harbor City.

    “We did get hit hard, and I can't blame the towns because they're trying to hang in there as well, but it hurts our members,” King said. cq  “The employees we represent aren't the higher paid salaries. We represent the clerks, the public works guys that take care of the towns. ... When we lose those jobs, there's a greater impact.”

    Some economists say governments cutting back on workers is slowing the recovery, adding to unemployment when private sector job creation is too weak to compensate for it.

    Others argue growing government and soaring debt are holding the economy back.

    The public sector — which makes up nearly 8 percent of the regional work force — took a drubbing in 2011.

    The federal government reduced manpower 9 percent in Atlantic, Cape May, Cumberland and Ocean counties, while the state reduced jobs 8 percent.

    The local government work force — including municipalities, schools and counties — was reduced by 4 percent, but represented the largest number of jobs lost since it is the majority of government workers.

    Private sector jobs remained about the same during that period.

    Job losses in the region had a smaller impact on budgets, where total wages of federal, state and local workers combined dropped less than 2 percent from 2010 to 2011 and remained higher than in 2009, labor data show. With fewer workers, the average annual pay for area government workers increased from 2010 to 2011, nearly $10,000 in some areas in state and federal government.

    The size of government and pay of its workers is a hot-button topic, but employment cuts have a cost, said Heidi Shierholz, cq labor market economist at the Economic Policy Institute in Washington, D.C.

    “It’s a massive drag on the economy,” she said. “There may be an idea there’s a ton that can be cut with no pain, that there’s a huge fraud-and-abuse line you could just cut. People think there are a lot of cuts that can take place without actually harming the economy, and it’s just not true.”

    Among local government workers in Atlantic County, 5 percent of positions — or about 250 jobs — were eliminated in 2011. Cape May County workers likewise saw 5 percent of local government jobs lost, while there was a 7 percent fewer in Cumberland County and a 3 fewer cut in Ocean County.

    The public sector had been spared from more drastic cuts the two prior years in part because of the American Recovery and Reinvestment Act of 2009. The federal stimulus helped the public sector support employment, said Gary Burtless,cq labor economist at the Brookings Institution, a Washington, D.C.-based research institute.

    When the money ran out, the impacts on public jobs became more evident.

    Burtless said the federal unemployment rate would look better had jobs in the public sector simply remained stagnant, and even lower had it grown with the population.

    “If the government industry had done as well as the construction industry — which also added no jobs, and the construction industry remains very depressed — we would have an unemployment rate 0.7 percentage points lower,” he said.

    Tad DeHaven is a budget analyst for the Cato Institute, a Washington, D.C.-based policy research organization promoting limited government.

    DeHaven said taxpayer money that funds public salaries s ultimately hinders the private sector and the economy.

    “Money that went to a government employee’s salary is money that could have gone to the baker down the street or the movie theater. You just can’t look at is as you have a loss of a government employee, the loss of a salary-paying job. You had to take money out to the economy to begin with to pay the government to begin with.”

    Public and private sector employees cannot be viewed  the same way, he said.

    "Businesses that don't make a profit go out of business, and wages and benefits are going to reflect that accordingly," he said. "When government spends too much money, they issue more debt, and they can increase taxes."

    Dimitri Papadimitriou, president of the Levy Economics Institute of Bard College in New York, disagrees. He said cutting public jobs is the wrong way to recover from a recession.

    “It’s always very easy to suggest the private sector should be the driver of economic growth,” he said, “but it will only be the driver if the prospects and expectations and forecasts of the future are more euphoric ...This is the time not to do this cutting, but actually to promote employment and in some ways to increase public-sector employment.”

    The prolonged economic slump makes this recovery much different than previous ones, said Michael Busler,cq a Richard Stockton College of New Jersey business professor and a fellow at the William J. Hughes Center for Public Policy.

    “After the 1981 recession, we were adding over 400,000 jobs per month, and there were two months we added over one million jobs. If we could get that kind of growth, the loss in the public sector would be negligible,” he said.

    “If the economy was recovering the way it traditionally does after a steep recession, the answer is yes, the private sector could compensate for that. The problem is the recovery has been so slow,” he said.

  • Working Paper No. 722 | May 2012
    Sustainable Full Employment

    In most economies, the potential of saving energy via insulation and more efficient uses of electricity is important. In order to reach the Kyoto Protocol objectives, it is urgent to develop policies that reduce the production of carbon dioxide in all sectors of the economy. This paper proposes an analysis of a green-jobs employer-of-last-resort (ELR) program based on a stock-flow consistent (SFC) model with three productive sectors (consumption, capital goods, and energy) and two household sectors (wage earners and capitalists). By increasing the energy efficiency of dwellings and public buildings, the green-jobs ELR sector implies a shift in consumption patterns from energy consumption toward consumption of goods. This could spur the private sector and thus increase employment. Lastly, the jobs guarantee program removes all involuntary unemployment and decreases poverty while lowering carbon dioxide emissions. The environmental policy proposed in this paper is macroeconomic and offers a structural change of the economy instead of the usual micro solutions.

  • Policy Note 2012/2 | March 2012
    The Nonprofit Model for Implementing a Job Guarantee

    The conventional approach of fiscal policy is to create jobs by boosting private investment and growth. This approach is backward, says Research Associate Pavlina R. Tcherneva. Policy must begin by fixing the unemployment situation because growth is a byproduct of strong employment—not the other way around. Tcherneva proposes a bottom-up approach based on community programs that can be implemented at all phases of the business cycle; that is, a grass-roots job-guarantee program run by the nonprofit sector (with participation by the social entrepreneurial sector) but financed by the government. A job-guarantee program would lead to full employment over the long run and address an outstanding fault of modern market economies.

  • Working Paper No. 706 | February 2012
    An Augmented Minskyan-Kaleckian Model

    This paper augments the basic Post-Keynesian markup model to examine the effects of different fiscal policies on prices and income distribution. This is an approach à la Hyman P. Minsky, who argued that in the modern era, government is both “a blessing and a curse,” since it stabilizes profits and output by imparting an inflationary bias to the economy, but without stabilizing the economy at or near full employment. To build on these insights, the paper considers several distinct functions of government: 1) government as an income provider, 2) as an employer, and 3) as a buyer of goods and services. The inflationary and distributional effects of each of these fiscal policies differ considerably. First, the paper examines the effects of income transfers to individuals and firms (in the form of unemployment insurance and investment subsidies, respectively). Next, it considers government as an employer of workers (direct job creation) and as a buyer of goods and services (indirect job creation). Finally, it modifies the basic theoretical model to incorporate fiscal policy à laMinsky and John Maynard Keynes, where the government ensures full employment through direct job creation of all of the unemployed unable to find private sector work, irrespective of the phase of the business cycle. The paper specifically models Minsky’s proposal for government as the employer of last resort (ELR), but the findings would apply to any universal direct job creation plan of similar design. The paper derives a fundamental price equation for a full-employment economy with government. The model presents a “price rule” for government spending that ensures that the ELR is not a source of inflation. Indeed, the fundamental equation illustrates that in the presence of such a price rule, at full employment inflationary effects are observed from sources other thanthe public sector employment program.


  • Working Paper No. 705 | February 2012
    Lessons from Argentina

    The literature on public employment policies such as the job guarantee (JG) and the employer of last resort (ELR) often emphasizes their macroeconomic stabilization effects. But carefully designed and implemented policies like these can also have profound social transformative effects. In particular, they can help address enduring economic problems such as poverty and gender disparity. To examine how, this paper will look at the reform of Argentina’s Plan Jefes into Plan Familias. Plan Jefes was the hallmark stabilization policy of the Argentine government after the 2001 crisis. It guaranteed a public sector job in a community project to unemployed male and female heads of households. The vast majority of beneficiaries, however, turned out to be poor women. For a number of reasons that are explored below, the program was later reformed into a cash transfer policy, known as Plan Familias, that still exists today. The paper examines this reform in order to evaluate the relative impact of such policies on some of the most vulnerable members of society; namely, poor women. An examination of the Argentine experience based on survey evidence and fieldwork reveals that poor women overwhelmingly want paid work opportunities, and that a policy such as the JG or the ELR cannot only guarantees full employment and macroeconomic stabilization, but it can also serve as an institutional vehicle that begins to transform some of the structures and norms that produce and reproduce gender disparities. These transformative features of public employment policies are elucidated by turning to the capabilities approach developed by Amartya Sen and elaborated by Martha Nussbaum—an approach commonly invoked in the feminist literature. This paper examines how the access to paid employment can enhance what Sen defines as an individual’s “substantive freedom.” Any policy that fosters genuine freedom begins with an understanding of what the targeted population (in this case, poor women) wants. It then devises a strategy that guarantees that such opportunities exist and removes the obstacles to accessing these opportunities.

  • In the Media | January 2012
    By Dimitri B. Papadimitriou

    Los Angeles Times, January 5, 2012. Copyright © 2012 Los Angeles Times

    International experience shows that direct job creation by governments is one of the very few options that has succeeded at raising employment levels more than just marginally during a crisis.

    Is high unemployment as certain as death and taxes? Of course not. But if we depend on the private sector to bring rates down, joblessness could join those two certainties.

    International experience shows that direct job creation by governments is one of the very few options that has succeeded at raising employment levels more than just marginally during a crisis. Nonetheless, unfounded optimism about the power of privately fueled growth underlies the latest round of interventions in Europe. The assumption that the business sector has the ability to absorb enough labor to end the unemployment crisis remains almost unquestioned.

    And it is a crisis, despite the recent employment upsurge in much of the world. In Portugal, Ireland, Greece and Spain, high unemployment has continued, with anemic confidence indicators and planned-purchases data in Greece, for example, showing clear evidence that businesses and consumers are bracing for a protracted recession. In economies that are improving, outrageously high unemployment rates among important groups, particularly youths, signal the start of both a threat and a tragedy. Grave labor issues are scattered around the globe.

    It's unreasonable to expect private enterprises to solve these problems. Full employment isn't an objective of businesses. Companies usually strive to keep staffing at a minimum—we've all heard the virtues of "lean and mean." There simply isn't any known automatic mechanism, in the markets or elsewhere, that creates jobs in numbers that match the pool of people willing and able to work.

    In contrast, direct public-service job creation programs by governments have a history of long-term positive results. Throughout the last century, the United States, Sweden, India, South Africa, Argentina, Ethiopia, South Korea, Peru, Bangladesh, Ghana, Cambodia and Chile, among others, have intermittently adopted policies that made them "employers of last resort"—a term coined by economist Hyman Minsky in the 1960s—when private sector demand wasn't sufficient.

    South Korea, for example, during the meltdown of 1997-'98, implemented a Master Plan for Tackling Unemployment that accounted for 10% of government expenditure. It employed workers on public projects that included cultivating forests, building small public facilities, repairing public utilities, environmental cleanup work, staffing community and welfare centers, and information/technology-related projects targeted at the young and computer-literate. The overall economy expanded and thrived in the aftermath.

    In 2005, France outlined a program in which the government paid laid-off workers their former salaries. It showed that this model could ultimately cost the nation a lower percentage of GDP than unemployment compensation or other traditional remedies.

    Of course, these ideas came long after America's Depression-era initiatives had already proved that government could successfully fulfill the role of employer without competing with the private sector. Programs such as the Public Works Administration and the Civilian Conservation Corps were followed by a "golden" era in American capitalism, and now, decades later, those policies are still providing rewards. The vogue to dismiss the 1940s recovery as entirely the result of World War II reflects political positioning, not economic data.

    At the theoretical heart of job-creation programs is this fact: Only government, because it is not seeking profitability when it is hiring, can create a demand for labor that is elastic enough to keep a nation near full employment. During a downturn, when a government offers a demand for unemployed workers, it takes on a role analogous to the one that the Federal Reserve plays when it provides liquidity to banks. As in banking, setting an appropriate rate—in this case, a wage—is one key component for success, with the goal of employing those willing and able to work at or marginally below prevailing informal wages.

    And, as in any good public policy, another key is rigorous, scientific monitoring and evaluation. South Africa, in response to a projected unemployment rate of 33% by 2014, has launched a $2.5-billion initiative to create 1 million "cumulative work opportunities" over five years. Analysis by Rania Antonopoulos of the Levy Institute found that care-provisioning jobs—such as home-based workers who care for the ill, the elderly or young children—had a significantly stronger impact as an employment multiplier than infrastructure-oriented or "green" opportunities. Not all jobs are created equal.

    The benefits of direct job creation aren't just transitory. It's well documented that persistent unemployment results in a permanent loss of output and labor productivity. During a crisis, jobs combat these potential future effects. When the good times are rolling, they support those excluded from the prosperity while stimulating demand through feedback loops that increase the economy's vibrancy.

    This is the moment to expand the range of policy responses to unemployment.

    There's no evidence that work creation policies either hurt private business or break national treasuries. Incurring national debt to restore an economy through direct job creation isn't frivolous. It is logical, practical, effective and humane.

  • Research Project Reports | November 2011

    Countries in crisis round the world face the daunting task of dealing with abrupt increases in unemployment and associated deepening poverty. Greece, in the face of her sovereign debt crisis, has been hit the hardest. Remediating employment policies, including workweek reductions and employment subsidies, abound but have failed to answer the call satisfactorily. Direct public-service job creation, instead, enables communities to mitigate risks and vulnerabilities that rise especially in turbulent times by actively transforming their own economic and social environment.

    With underwriting from the Labour Institute of the Greek General Confederation of Workers, the Levy Economics Institute was instrumental in the design and implementation of a social works program of direct job creation throughout Greece. Two-year projects, funded from European Structural Funds, have begun.

    This report traces the economic trends preceding and surrounding the economic crisis in Greece, with particular emphasis on recent labor market trends and emerging gaps in social safety net coverage. While its primary focus is identifying the needs in Greece, broader lessons for direct job creation are highlighted, and could be applied to countries entertaining targeted employment creation as a means to alleviate social strains during crisis periods.

  • One-Pager No. 16 | October 2011

    The American Jobs Act now before Congress relies largely on a policy of aggregate demand management, or “pump priming”: injecting demand into a frail economy in hopes of boosting growth and lowering unemployment. But this strategy, while beneficial in setting a floor beneath economic collapse, fails to produce and maintain full employment, while doing little to address income inequality. The alternative? Fiscal policy that directly targets unemployment by providing paid work to all those willing to do their part.

  • In the Media | October 2011
    By Catherine Hollander

    National Journal, October 11, 2011. Copyright © 2011 by National Journal Group Inc.

    The U.S. job market has shown lackluster growth recently, to put it mildly.

    The September employment report, released on Friday, revealed that nonfarm payrolls added just 103,000 jobs last month—not horrific, but still under the threshold economists say they need to cross in order to dent unemployment. The Senate is likely to vote on the job-creation proposals in President Obama’s $447 billion American Jobs Act this week, but the bill’s passage is a long shot.

    As they consider the legislation, lawmakers may want to reflect on their counterparts across the Atlantic.

    While each economy faces unique obstacles to growth, fellow developed countries like Germany, Denmark, and France have implemented programs analogous to some found in Obama’s jobs bill with success. These include job-search programs accompanying unemployment benefits and stepped-up apprenticeship programs.

    Other countries have developed programs not found in the president’s legislation, such as mechanisms to certify workers who have gained skills on the job rather than in the classroom.

    Unemployment insurance programs vary widely from country to country. As of 2007, the most recent year for which data was available, the U.S. paid employees 13.6 percent of their previous earnings on average, compared with 24.7 percent in the Organisation for Economic Co-operation and Development as a whole, which counts the U.S. and 33 other wealthy countries as members.

    The U.S. also has short-lasting unemployment benefits compared with most of the other OECD members. By itself, this provides a “powerful incentive” for the unemployed to look for their next job, according to Gary Burtless, an economist at the Brookings Institution.

    But other OECD countries have deployed different incentives to get recipients of unemployment benefits back to work. Many low-paying jobs in the U.S. pay around the same as the benefits. Other countries have ensured work earnings are higher than unemployment benefits, incentivizing recipients to look for a job, according to Stefano Scarpetta, the OECD’s Deputy Director for Employment, Labour, and Social Affairs. 

    Some OECD countries have bolstered their programs to help the recipients of unemployment insurance re-enter the workforce. France and others have made unemployment benefits conditional on searching for a job and participating in re-employment programs. The U.S. has paid less attention to investing in such labor market institutions, Scarpetta said.

    He recommended focusing on “training, apprenticeship, and skills” to boost unemployment among the most vulnerable sectors of the population -- the young and long-term unemployed. Countries such as Germany and Denmark stepped up their traditional apprenticeship programs in response to the economic downturn. The pumped-up programs have a strong track record of landing apprentices with jobs, Scarpetta said.

    The American Jobs Act proposes to do this through new training for the recipients of unemployment insurance -- so-called “bridge to work” programs modeled after efforts in Georgia and North Carolina. These programs allow long-term unemployed workers to continue receiving unemployment benefits while they pursue work-based training.

    Such training could have secondary benefits, eliminating unwanted social trends such as crime and depression that are associated with high unemployment levels, according to Dimitri Papadimitriou, president of Bard College’s Levy Economics Institute. He called the training programs a “very good idea.”

    But Papadimitriou cautioned that without a more general economic recovery, simply training unemployed workers doesn’t guarantee jobs. Others fear it will be difficult to find employers willing to bring in unpaid trainees. They like to maintain control over the hiring process, Brookings’s Burtless said.

    It would be more fruitful in the long run to reform the way the U.S. thinks about employment training, he said.

    Several OECD countries, including Portugal, have created mechanisms by which workers who drop out of school but gain skills on the job can have those skills certified, making them more attractive to potential employers.

    The U.S. places too much emphasis on formal educational credentials and not enough on skills acquisition, Burtless said. A European-style certification program could make on-the-job training more valuable by providing workers with proof that they have a transferable skill.

    Such a program runs the risk of locking workers into too-rigid skill certifications, which could harm their ability to appear flexible in a changing workforce, according to Randall Eberts, president of the Upjohn Institute for Employment Research. It would not provide immediate unemployment relief, and it would take time for employers and workers to recognize the value of the certificate, but it could provide a huge help in the long run to a large portion of workers who complete their training on the job, Burtless said.

    Some economists were hesitant to make comparisons between the U.S. and the smaller European countries, whose economies operate in a different political environment. And it will ultimately take strong overall economic growth to turn around the labor market. Supply-side changes will have a limited impact without an accompanying improvement in demand, Papadimitriou argued.

    But in the end, the point is not that other developed countries have it all figured out—it’s that no one does, and looking at programs that have been implemented abroad can be a useful jumping-off point for discussions of job-creation measures in the U.S.

    Associated Program(s):
    Region(s):
    United States
  • In the Media | September 2011
    Interview with Pavlina R. Tcherneva

    September 8, 2011. © 2011 by Wisconsin Public Radio

    As Obama tours the East promoting his jobs bill, and jobs forums spring up across Wisconsin, Research Associate Tcherneva and host Ben Merens talk about what should be done now to address unemployment. Full audio of the interview is available here.

    Associated Program(s):
    Region(s):
    United States
  • One-Pager No. 11 | August 2011
    There is little mystery to explaining our current high levels of unemployment. The Bureau of Economic Analysis recently revised its figures on GDP growth, and revealed that not only was the recession worse than we realized, but recent growth rates have been overstated as well. The hole, in other words, was deeper than we thought, and we have been climbing out of it at a slower pace. Simply put, the economy has failed to recover to the point where it can be expected to generate sufficient job growth. In the event that Congress should turn its attention away from the (so far) purely notional dangers of rising debt levels and back toward the immediate and tangible jobs crisis, it might consider a solution that has been overlooked so far: job creation through social care investment.

  • Working Paper No. 671 | May 2011
    Case Studies in South Africa and the United States

    This paper demonstrates the strong impacts that public job creation in social care provisioning has on employment creation. Furthermore, it shows that mobilizing underutilized domestic labor resources and targeting them to bridge gaps in community-based services yield strong pro-poor income growth patterns that extend throughout the economy. Social care provision also contributes to promoting gender equality, as women—especially from low-income households—constitute a major workforce in the care sector. We present the ex-ante policy simulation results from two country case studies: South Africa and the United States. Both social accounting matrix–based multiplier analysis and propensity ranking–based microsimulation provide evidence of the pro-poor impacts of the social care expansion.

  • One-Pager No. 9 | May 2011

    The slow recovery of the job market after the recessions of 2001 and 2007–09 has fostered concerns that the link between output growth and job creation has been severed. Between 2000 and 2010, the employment rate for males plunged from 71.9 to 63.7 percent—a decline that can be accounted for almost entirely by a fall in the employment rate for the disabled members of this group.

    Research Scholar Greg Hannsgen examines whether the Great Recession disproportionately affected the job prospects of disabled workers, and whether the long-run fall in employment among the disabled can be blamed largely on the design of Social Security disability insurance. His findings? At least since 2008, the ongoing fall in the probability of being employed has strongly affected the job prospects of both the disabled and the nondisabled, and the accelerated declines since 2007 hint at an important, and negative, role for the recent recession. Hence, a government jobs initiative such as an employer-of-last-resort program, and not just long-term improvements in entitlement programs, is still very much apropos.

  • Working Paper No. 668 | May 2011
    Functional Finance and Full Employment

    Forty-five years ago, the A. Philip Randolph Institute issued “The Freedom Budget,” in which a program for economic transformation was proposed that included a job guarantee for everyone ready and willing to work, a guaranteed income for those unable to work or those who should not be working, and a living wage to lift the working poor out of poverty. Such policies were supported by a host of scholars, civic leaders, and institutions, including the Rev. Dr. Martin Luther King Jr.; indeed, they provided the cornerstones for King’s “Poor Peoples’ Campaign” and “economic bill of rights.”

    This paper proposes a “New Freedom Budget” for full employment based on the principles of functional finance. To counter a major obstacle to such a policy program, the paper includes a “primer” on three paradigms for understanding government budget deficits and the national debt: the deficit hawk, deficit dove, and functional finance perspectives. Finally, some of the benefits of the job guarantee are outlined, including the ways in which the program may serve as a vehicle for a variety of social policies.

  • Working Paper No. 650 | January 2011

    This paper argues for a fundamental reorientation of fiscal policy, from the current aggregate demand management model to a model that explicitly and directly targets the unemployed. Even though aggregate demand management has several important benefits in stabilizing an unstable economy, it also has a number of serious drawbacks that merit its reconsideration. The paper identifies the shortcomings that can be observed during both recessions and economic recoveries, and builds the case for a targeted demand-management approach that can deliver economic stabilization through full employment and better income distribution. This approach is consistent with Keynes’s original policy recommendations, largely neglected or forgotten by economists across the theoretical spectrum, and offers a reinterpretation of his proposal for the modern context that draws on the work of Hyman Minsky.

  • Working Paper No. 649 | January 2011

    This paper reconsiders fiscal policy effectiveness in light of the recent economic crisis. It examines the fiscal policy approach advocated by the economics profession today and the specific policy actions undertaken by the Bush and Obama administrations. An examination of the labor market renders the contemporary aggregate demand–management approach wholly inadequate for achieving certain macroeconomic objectives, such as the stabilization of investment and investor expectations, the generation and maintenance of full employment, and the equitable distribution of incomes. The paper reconsiders the policy effectiveness of alternative fiscal policy approaches, and argues that a policy that directly targets the labor demand gap (as opposed to the output gap) is far more effective in stabilizing employment, incomes, investment, and balance sheets.

  • Working Paper No. 624 | September 2010

    We reinterpret unit labor costs (ULC) as the product of the labor share in value added, times a price adjustment factor. This allows us to discuss the functional distribution of income. We use data from India’s organized manufacturing sector and show that while India’s ULC displays a clear upward trend since 1980 (with a decline since the early 2000s), this is exclusively the result of the increase in the price deflator used to calculate the ULC. The labor share of India’s organized manufacturing sector has been on a downward trend, from 60 percent in 1980 to 26 percent in 2007. This means that the sector’s capital share increased from 40 to 74 percent over the same period. We also find that real wages have increased minimally during the period analyzed—well below labor productivity—while the real profit rate and unit capital costs have increased substantially. We conclude that if India’s organized manufacturing sector has lost any competitiveness, it is the result of the increase in unit capital costs. Our analysis questions policy recommendations that advocate wage moderation, which result from simply looking at the evolution of the ULC, and that blame the loss of competitiveness on high or increasing wages.

  • Working Paper No. 610 | August 2010
    A Strategy for Effective and Equitable Job Creation
    Massive job losses in the United States, over eight million since the onset of the “Great Recession,” call for job creation measures through fiscal expansion. In this paper we analyze the job creation potential of social service–delivery sectors—early childhood development and home-based health care—as compared to other proposed alternatives in infrastructure construction and energy. Our microsimulation results suggest that investing in the care sector creates more jobs in total, at double the rate of infrastructure investment. The second finding is that these jobs are more effective in reaching disadvantaged workers—those from poor households and with lower levels of educational attainment. Job creation in these sectors can easily be rolled out. States already have mechanisms and implementation capacity in place. All that is required is policy recalibration to allow funds to be channeled into sectors that deliver jobs both more efficiently and more equitably.

  • Working Paper No. 608 | August 2010
    The economic returns to education in transition countries have been extensively evaluated in the literature. The present study contributes to this literature by estimating the returns to education in Georgia during the last transition period 2000–04. We find very low returns to education in Georgia and little evidence of an increasing trend in the returns. This picture contrasts with somewhat higher rates of return to education in the mid-1990s in Georgia and the recent estimates from other transition countries. A further analysis of the shifts in the supply and demand for education sheds light on possible causes. In particular, on the supply side, the decline in the quality of education in the 1990s has negated the improvements in the provision of skills needed by market economies during this period. On the demand side, the expansion of the Georgian economy has taken place in the direction of fields such as public administration and education that employ a highly educated workforce but do not remunerate well. Yet it would be a mistake to conclude that education is not a valuable asset in Georgia. The role of education is largely manifested in its impact on the employability of individuals, an issue that has been overlooked in the transition literature. Once this impact is taken into account, education is shown to play an increasingly important role in influencing the earnings of the working population in Georgia. The paper uses the ordinary least squares approach, instrumental variables approach, and sample selection correction, taking into account conditional and unconditional marginal effects of education on earnings.

  • Working Paper No. 607 | August 2010
    Standard and Behavioral Approaches to Agency and Labor Markets
    Employers structure pay and employment relationships to mitigate agency problems. A large literature in economics documents how the resolution of these problems shapes personnel policies and labor markets. For the most part, the study of agency in employment relationships relies on highly stylized assumptions regarding human motivation, e.g., that employees seek to earn as much money as possible with minimal effort. In this essay, we explore the consequences of introducing behavioral complexity and realism into models of agency within organizations. Specifically, we assess the insights gained by allowing employees to be guided by such motivations as the desire to compare favorably to others, the aspiration to contribute to intrinsically worthwhile goals, and the inclination to reciprocate generosity or exact retribution for perceived wrongs. More provocatively, from the standpoint of standard economics, we also consider the possibility that people are driven, in ways that may be opaque even to themselves, by the desire to earn social esteem or to shape and reinforce identity.

  • Policy Note 2010/1 | July 2010

    The nation’s economic challenges are daunting. Restoring robust American prosperity and widespread economic opportunity will not be easy. But, as Hyman Minsky stressed, “Economic systems are not natural systems…. Policy can change both the details and the overall character of the economy.”

    It’s clear that what we are now facing is not simply a cyclical crisis, or even an employment crisis, writes Charles J. Whalen. Rather, it is a standard-of-living-and-economic-opportunity crisis—the latest phase in a decades-long “silent depression.” In order to resolve it, our policy response must reflect that we are dealing with a deep-seated structural problem, one rooted in the evolution of US economic development. Policymakers must pursue an agenda of recovery and reform that includes, at minimum, a major assistance package for state and local governments; more relief for the unemployed and those facing foreclosure; tougher supervision of financial institutions; stronger automatic stabilizers (e.g., public service employment); policies that foster economic opportunities for working families; improved retirement security; and labor law reform that gives workers a more realistic chance to organize and bargain collectively.

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    Charles J. Whalen

  • Working Paper No. 588 | March 2010

    This paper proposes a difference-in-differences strategy to decompose the contributions of various types of discrimination to the black-white wage differential. The proposed estimation strategy is implemented using data from the Young Physicians Survey. The results suggest that potential discrimination plays a small role in the racial wage gap among physicians. At most, discrimination lowers the hourly wages of black physicians by 3.3 percent. Decomposition shows that consumer discrimination accounts for all of the potential discrimination in the physician market, and that the effect of firm discrimination may actually favor black physicians. Interpretations of the estimates, however, are complicated by the possibility that, relative to white physicians, black physicians negatively self-select into self-employment.

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    Tsu-Yu Tsao Andrew Pearlman
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  • Policy Note 2009/10 | October 2009
    What Are the Lessons of the New Deal?

    As the nation watches the impact of the recent stimulus bill on job creation and economic growth, a group of academics continues to dispute the notion that the fiscal and job creation programs of the New Deal helped end the Depression. The work of these revisionist scholars has led to a public discourse that has obvious implications for the controversy surrounding fiscal stimulus bills. Since we support a new stimulus package—one that emphasizes jobs for the 9.8 percent of the workforce currently unemployed—we have been concerned about this debate. With Congress, the White House, pundits, and the press riveted on the all-important health care debate, we worry that they are also distracted by skirmishes over economic theory and history, while millions wait for a new chance to do meaningful work and effective, if imperfect, policy tools are readily at hand. (See also, Public Policy Brief No. 104.)

  • Working Paper No. 581 | October 2009
    Did the New Deal Prolong or Worsen the Great Depression?

    Since the current recession began in December 2007, New Deal legislation and its effectiveness have been at the center of a lively debate in Washington. This paper emphasizes some key facts about two kinds of policy that were important during the Great Depression and have since become the focus of criticism by new New Deal critics: (1) regulatory and labor relations legislation, and (2) government spending and taxation. We argue that initiatives in these policy areas probably did not slow economic growth or worsen the unemployment problem from 1933 to 1939, as claimed by a number of economists in academic papers, in the popular press, and elsewhere. To substantiate our case, we cite some important economic benefits of New Deal–era laws in the two controversial policy areas noted above. In fact, we suggest that the New Deal provided effective medicine for the Depression, though fiscal policy was not sufficiently countercyclical to conquer mass unemployment and prevent the recession of 1937–38; 1933’s National Industrial Recovery Act was badly flawed and poorly administered, and the help provided by the National Labor Relations Act of 1935 came too late to have a big effect on the recovery.

  • Public Policy Brief Highlights No. 104A | September 2009

    A wave of revisionist work claims that “anticompetitive” New Deal legislation such as the National Industrial Recovery Act (NIRA) and the National Labor Relations Act (NLRA) greatly slowed the recovery from the Depression; in this new public policy brief, President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen review these claims in light of current policy debates and cast into doubt the argument that NIRA and NLRA significantly prolonged or worsened the Depression. Moreover, Social Security, federal deposit insurance, and other New Deal programs helped usher in an era of relative prosperity following World War II. When it comes to combating the current recession and employment slump, it is the successful experience with relief and public works, and not the repercussions of pro-union and regulatory legislation, that offer the most relevant and helpful lessons.

  • Public Policy Brief No. 104 | August 2009
    Did Roosevelt’s “Anticompetitive” Legislation Slow the Recovery from the Great Depression?

    A wave of revisionist work claims that “anticompetitive” New Deal legislation such as the National Industrial Recovery Act (NIRA) and the National Labor Relations Act (NLRA) greatly slowed the recovery from the Depression; in this new public policy brief, President Dimitri B. Papadimitriou and Research Scholar Greg Hannsgen review these claims in light of current policy debates and cast into doubt the argument that NIRA and NLRA significantly prolonged or worsened the Depression. Moreover, Social Security, federal deposit insurance, and other New Deal programs helped usher in an era of relative prosperity following World War II. When it comes to combating the current recession and employment slump, it is the successful experience with relief and public works, and not the repercussions of pro-union and regulatory legislation, that offer the most relevant and helpful lessons.

  • Public Policy Brief Highlights No. 101A | August 2009
    Lessons Learned from South Africa’s Expanded Public Works Programme

    Beyond loss of income, joblessness is associated with greater poverty, marginalization, and social exclusion; the current global crisis is clearly not helping. In this new Public Policy Brief, Research Scholar Rania Antonopoulos explores the impact of both joblessness and employment expansion on poverty, paying particular attention to the gender aspects of poverty and poverty-reducing public employment schemes targeting poor women.

    The author presents the results of a Levy Institute study that examines the macroeconomic consequences of scaling up South Africa’s Expanded Public Works Programme by adding to it a new sector for social service delivery in health and education. She notes that gaps in such services for households that cannot afford to pay for them are mostly filled by long hours of invisible, unpaid work performed by women and children. Her proposed employment creation program addresses several policy objectives: income and job generation, provisioning of communities’ unmet needs, skill enhancement for a new cadre of workers, and promotion of gender equality by addressing the overtaxed time of women.

     

  • Responding to the Current Economic Crisis and Contributing to Long-Term Development

    A Collaborative Project of the United Nations Development Programme, Regional Bureau for Latin America and the Caribbean (RBLAC), and the Bureau for Development Policy (BDP), in Partnership with The Levy Economics Institute.

    The Levy Economics Institute, Blithewood, Annandale-on-Hudson, New York
    June 22–23, 2009.

    With poverty, inequality, and unemployment trending upward worldwide, job creation, especially for marginalized populations, is urgently needed. By mobilizing unused domestic labor resources, direct job creation can become an engine of pro-poor growth while also promoting gender equality and meeting social inclusion targets—key international development goals. Public works projects, employment guarantees, and employment of last resort strategies can play a crucial role in reducing unemployment and poverty, ameliorating distress migration and delivering physical infrastructure and social services in ways that particularly benefit underserved communities.

    On June 22 and 23, The Levy Economics Institute, in partnership with the United Nations Development Programme (UNDP), convened an international conference to present the merits and challenges of public job creation programs as a constitutive component of an economic recovery strategy. Titled “Employment Guarantee Policies: Responding to the Current Economic Crisis and Contributing to Long-Term Development,” the conference was held at Blithewood, the Institute’s main research and conference facility, on the campus of Bard College in Annandale-on-Hudson, New York. More than 30 top policy advisers, members of government organizations, academics, and international development specialists met to analyze and exchange views on various public employment initiatives, drawing on existing research and the outcomes of country-level programs in South Africa, Argentina, India, Iran, and Chile.

  • Conference Audio | June 2009
    Responding to the Current Economic Crisis and Contributing to Long-Term Development

    A Collaborative Project of the United Nations Development Programme, Regional Bureau for Latin America and the Caribbean (RBLAC), and the Bureau for Development Policy (BDP), in Partnership with The Levy Economics Institute

    On June 22 and 23, The Levy Economics Institute, in partnership with the United Nations Development Programme (UNDP), convened an international conference to present the merits and challenges of public job creation programs as a constitutive component of an economic recovery strategy. Titled “Employment Guarantee Policies: Responding to the Current Economic Crisis and Contributing to Long-Term Development,” the conference was held at Blithewood, the Institute’s main research and conference facility, on the campus of Bard College in Annandale-on-Hudson, New York. More than 30 top policy advisers, members of government organizations, academics, and international development specialists met to analyze and exchange views on various public employment initiatives, drawing on existing research and the outcomes of country-level programs in South Africa, Argentina, India, Iran, and Chile.

  • Public Policy Brief No. 101 | June 2009
    Lessons Learned from South Africa’s Expanded Public Works Programme

    Beyond loss of income, joblessness is associated with greater poverty, marginalization, and social exclusion; the current global crisis is clearly not helping. In this new Public Policy Brief, Research Scholar Rania Antonopoulos explores the impact of both joblessness and employment expansion on poverty, paying particular attention to the gender aspects of poverty and poverty-reducing public employment schemes targeting poor women.

    The author presents the results of a Levy Institute study that examines the macroeconomic consequences of scaling up South Africa’s Expanded Public Works Programme by adding to it a new sector for social service delivery in health and education. She notes that gaps in such services for households that cannot afford to pay for them are mostly filled by long hours of invisible, unpaid work performed by women and children. Her proposed employment creation program addresses several policy objectives: income and job generation, provisioning of communities’ unmet needs, skill enhancement for a new cadre of workers, and promotion of gender equality by addressing the overtaxed time of women.

     

  • Policy Note 2009/5 | April 2009

    There is already considerable talk about the possible need for a massive public works program in response to the deepening recession and rising unemployment; however, an ad hoc emergency approach is going to waste billions of dollars by mismatching skills and needs. In this new Policy Note, Martin Shubik of Yale University outlines a proposal aimed directly at providing good planning consistent with maintaining market freedom and minimizing pork-barrel legislation. Rather than an emergency relief program on the order of the New Deal Works Progress Administration, Shubik proposes a permanent agency modeled on the Federal Reserve that would monitor unemployment in each state and maintain a list of potential public works projects. Financing for any project could then be set in place as soon as the unemployment level in any state exceeded the trigger value, eliminating the need for relief legislation during a crisis.

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  • Policy Note 2009/4 | April 2009

    The ad hoc emergency approach to the current economic crisis has a great chance of wasting billions of dollars by mismatching skills and needs. According to Martin Shubik of Yale University, the current deepening recession needs a “quick fix” solution now, but a longer-fix solution must be put into place along with it.

    There is already considerable talk about the possible need for a large public works program to follow the massive infusion of funds into the financial and automobile sectors. But who is going to manage it? For us to weather this great economic storm we need to line up and coordinate (at least) four sets of highly different talents—political, bureaucratic, financial, and industrial. Without their coordination, economic recommendations, no matter how good they may appear to be in theory, will fail in execution.

  • Working Paper No. 559 | April 2009
    An Assessment of Recent Evidence

    In this paper we assess the evolution of labor-market performance in the Organisation for Economic Co-operation and Development (OECD) over the last decade. We provide a survey of the literature dealing with labor-market performance in the OECD, finding that, while this literature tends to conclude that institutions are a key part of the story, the survey’s results appear far less robust and uniform than is commonly believed. We then assess the robustness of the claims made in the most recent (2005) OECD follow-up study within a very similar cross-country setup, and highlight the impact of unobserved heterogeneity and outliers on the policy estimates. We find that in recent OECD cross-country data, changes in labor-market performance are consistently (and inversely) linked to its lagged level. Structural changes are also important: changes in the share of construction employees are very significant, even in the presence of various kinds of policy change indicators. As far as the latter are concerned, some consistent role seems to emerge only for active labor-market policies and (to a lesser extent) unemployment benefit reforms.

  • Policy Note 2009/1 | January 2009
    A Modest Proposal to Guarantee That He Meets and Exceeds Expectations
    Job creation is once again at the forefront of policy action, and for advocates of pro-employment policies, President Obama’s Keynesian bent is a most welcome change. However, there are concerns that Obama’s plan simply does not go far enough, and that a large-scale public investment program may face shortages of skilled labor, put upward pressure on wages, and leave women and minorities behind. Both concerns can be addressed by a simple amendment to the Obama plan that will bring important additional benefits. The amendment proposed here is for the government to offer a job guarantee to all unemployed individuals who are ready, willing, and able to participate in the economic recovery—that is, to target the unemployed directly.

  • Working Paper No. 552 | December 2008

    This study proposes a simple modification to a Social Accounting Matrix (SAM) in order to analyze the multiplier effects of a new sector. A different input composition, or technology, of the sector makes a conventional analysis of final-demand injections on existing sectors invalid. Author Kijong Kim shows that the modification—so-called hypothetical integration—is an efficient way to incorporate the difference into the SAM, rather than costly full-scale rebalancing. He applies this method to the case of the Expanded Public Works Programme in South Africa, and demonstrates that the proposed approach effectively represents the labor intensity requirement of the program and a new-factor income distribution.

  • Working Paper No. 545 | October 2008

    Unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. To put an economy on an equitable growth path, economic development must be based on social efficiency, equity—and job creation. Many economists, however, assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. This paper considers a particular employment strategy: a government job creation program, such as an employment guarantee or employer-of-last-resort (ELR) scheme, that would satisfy the noninflationary criteria. The paper analyzes the international experience of government job creation programs, with particular emphasis on the cases of Argentina and India. It concludes by considering the application of an ELR policy to the developing world, and as a vehicle for meeting the Millennium Development Goals.

  • Working Paper No. 542 | August 2008
    Aggregate or Targeted Demand?

    This paper argues that John Maynard Keynes had a targeted (as contrasted with aggregate) demand approach to full employment. Modern policies, which aim to “close the demand gap,” are inconsistent with the Keynesian approach on both theoretical and methodological grounds. Aggregate demand tends to increase inflation and erode income distribution near full employment, which is why true full employment is not possible via traditional pro-growth, pro-investment aggregate demand stimuli. This was well understood by Keynes, who preferred targeted job creation during expansions. But even in recessions, he did not campaign for wide-ranging aggregate demand stimuli; this is because different policies have different employment creation effects, which for Keynes was the primary measure of their effectiveness. There is considerable evidence to argue that Keynes had an “on the spot” approach to full employment, where the problem of unemployment is solved via direct job creation, irrespective of the phase of the business cycle.

  • Working Paper No. 539 | July 2008
    Can the New Developments in the New Economic Consensus Be Reconciled with the Post-Keynesian View?

    The monetarist counterrevolution and the stagflation period of the 1970s were among the theoretical and practical developments that led to the rejection of fiscal policy as a useful tool for macroeconomic stabilization and full employment determination.  Recent mainstream contributions, however, have begun to reassess fiscal policy and have called for its restitution in certain cases. The goal of this paper is to delimit the role of and place for fiscal policy in the New Economic Consensus (NEC) and to compare it to that of Post-Keynesian theory, the latter arguably the most faithful approach to the original Keynesian message. The paper proposes that, while a consensus may exist on many macroeconomic issues within the mainstream, fiscal policy is not one of them. The designation of fiscal policy within the NEC is explored and contrasted with the Post-Keynesian calls for fiscal policy via Abba Lerner’s “functional finance” approach. The paper distinguishes between two approaches to functional finance—one that aims to boost aggregate demand and close the GDP gap, and one that secures full employment via direct job creation. It is argued that the mainstream has severed the Keynesian link between fiscal policy and full employment—a link that the Post-Keynesian approach promises to restore.

  • Working Paper No. 534 | May 2008

    After the 2001 crisis, Argentina—once the poster-child for pro-market structural-adjustment policies—had to define a new strategy in order to manage the societal demands that had led to the fall of the previous administration. The demand by the majority of the population for employment recovery spurred the government to introduce a massive employment program, the Plan Jefes y Jefas de Hogar Desocupados (Program for Unemployed Male and Female Heads of Households). This program, which accounted for less than 1 percent of GDP at the outset, paved the way for a reduction of the contractionary effects that otherwise would have caused a catastrophic devaluation of the currency.

    This paper explores how Argentina pursued a strategy of employment generation, with the state participating as employer of last resort, to recover from one of the worst social and economic crises in its history.

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    Author(s):
    Daniel Kostzer

  • Working Paper No. 527 | January 2008
    The Case of Iran

    Iran’s constitution emphasizes social justice and obliges government to provide a job for every citizen. But in fact, the government’s duty to provide jobs has shifted to government support for a measure designed to create new employment opportunities through subsidized loans to the private sector. This policy has not been successful to date, and the current stock of unemployed workers is about three million—12.75 percent of the country’s labor force.

    To realize the desire of the Iranian people to achieve full employment and social justice, the government must implement employment guarantee schemes, or EGS, in the most deprived areas. Elected town and village councils can design and manage the public works with the help of other government, as well as nongovernment, institutions. Programs can be financed using less than 10 percent of the annual oil-exporting revenue that is deposited in the Oil Stabilization Fund.

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    Zahra Karimi
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  • Working Paper No. 524 | December 2007
    Forty-Five Years of Experience of Public Works in Morocco

    Created in 1961, Promotion Nationale (PN) is an autonomous public entity in charge of mobilizing an underemployed or unemployed workforce for the implementation of labor-intensive projects, calling upon a simple technology likely to provide employment to unskilled workers. It is one of the major programs of social protection in Morocco—the oldest, most important, and best-targeted social program in the country.

    Vis-à-vis the importance of rural underemployment, especially during dry years, estimated per million working days, PN aims to improve employment opportunities by developing collective working methods, and by generating large-scale investment for the realization of public infrastructure projects and rural equipment. This institution aims at limiting rural migration through the permanent improvement of local incomes and living conditions. It thus constitutes a safety net for a large part of the population, especially in rural areas. Forty-five years after its creation, PN has at its credit an important and single assessment regarding the fight against unemployment with minimal management costs, in spite of certain difficulties and limitations that hinder the organization, particularly in terms of the geographical targeting of rural poverty zones.

  • Working Paper No. 520 | November 2007

    Ragnar Nurkse was one the pioneers in development economics. This paper celebrates the hundredth anniversary of his birth with a critical retrospective of his overall contribution to the field, in particular his views on the importance of employment policy in mobilizing domestic resources and the difficulties surrounding the use of external resources to finance development. It also demonstrates the affinity between Nurkse’s theory of mobilizing domestic resources and employer-of-last-resort proposals.

  • Working Paper No. 519 | November 2007
    The Impact of Argentina’s Jefes Program on Female Heads of Poor Households

    In 2002, Argentina implemented a large-scale public employment program to deal with the latest economic crisis and the ensuing massive unemployment and poverty. The program, known as Plan Jefes, offered part-time work for unemployed heads of households, and yet more than 70 percent of the people who turned up for work were women. The present paper evaluates the operation of this program, its macroeconomic effects, and its impact on program participants. We report findings from our 2005 meetings with policymakers and visits to different project sites. We find that Jefes addresses many important community problems, is well received by participants, and serves the needs of women particularly well. Some of the benefits women report are working in mother-friendly jobs, getting needed training and education, helping the community, and finding dignity and empowerment through work.

  • Working Paper No. 517 | October 2007

    There is a body of literature that favors universal and unconditional public assurance policies over those that are targeted and means-tested. Two such proposals—the basic income proposal and job guarantees—are discussed here. The paper evaluates the impact of each program on macroeconomic stability, arguing that direct job creation has inherent stabilization features that are lacking in the basic income proposal. A discussion of modern finance and labor market dynamics renders the latter proposal inherently inflationary, and potentially stagflationary. After studying the macroeconomic viability of each program, the paper elaborates on their environmental merits. It is argued that the “green” consequences of the basic income proposal are likely to emerge, not from its modus operandi, but from the tax schemes that have been advanced for its financing. By contrast, the job guarantee proposal can serve as an institutional vehicle for achieving various environmental goals by explicitly targeting environmental rehabilitation, conservation, and sustainability. Finally, in the hope of consensus building, the paper advances a joint policy proposal that is economically viable, environmentally friendly, and socially just.

  • Public Policy Brief No. 91 | October 2007
    Suggestions for a New Agenda

    The failure of the Doha Development Round of World Trade Organization (WTO) negotiations in July 2006 was the first major collapse of a multilateral trade round since World War II. Research Associate Thomas Palley sees the failure as an event that could mark the close of a 60-year era of trade policy largely centered on increasing market access and reducing tariffs, quotas, and subsidies. Doha’s demise represents an opportunity to challenge the intellectual dominance of the current WTO paradigm, to expose the failings of the neoliberal model of economic development, and to reposition the global trade debate.

  • Public Policy Brief Highlights No. 91A | October 2007
    Suggestions for a New Agenda
    The failure of the Doha Development Round of World Trade Organization (WTO) negotiations in July 2006 was the first major collapse of a multilateral trade round since World War II. Research Associate Thomas Palley sees the failure as an event that could mark the close of a 60-year era of trade policy largely centered on increasing market access and reducing tariffs, quotas, and subsidies. Doha’s demise represents an opportunity to challenge the intellectual dominance of the current WTO paradigm, to expose the failings of the neoliberal model of economic development, and to reposition the global trade debate.

  • Working Paper No. 516 | September 2007
    Employment Guarantee Policies from a Gender Perspective

    There is now widespread recognition that in most countries, private-sector investment has not been able to absorb surplus labor. This is all the more the case for poor unskilled people. Public works programs and employment guarantee schemes in South Africa, India, and other countries provide jobs while creating public assets. In addition to physical infrastructure, an area that has immense potential to create much-needed jobs is that of social service delivery and social infrastructure. While unemployment and enforced “idleness” persist, existing time-use survey data reveal that people around the world—especially women and children—spend long hours performing unpaid work. This work includes not only household maintenance and care provisioning for family members and communities, but also time spent that helps fill public infrastructural gaps—for example, in the energy, health, and education sectors. This paper suggests that, by bringing together public job creation, on the one hand, and unpaid work, on the other, well-designed employment guarantee policies can promote job creation, gender equality, and pro-poor development.

  • Working Paper No. 515 | September 2007
    Employer of Last Resort and the War on Poverty

    While Hyman P. Minsky is best known for his work on financial instability, he was also intimately involved in the postwar debates about fiscal policy and what would become the War on Poverty. Indeed, at the University of California, Berkeley, he was a vehement critic of the policies of the Kennedy and Johnson administrations, and played a major role in developing an alternative. Minsky insisted that the high investment path chosen by postwar fine-tuners would generate macroeconomic instability, and that the War on Poverty would never lower poverty rates significantly. In retrospect, he was correct on both accounts. Further, he proposed high consumption and an employer of last resort policy as essential ingredients of any coherent strategy for achieving macro stability and poverty elimination. This paper summarizes Minsky’s work in this area, focusing on his writings from the early 1960s through the early 1970s in order to explore the path not taken.

  • Working Paper No. 514 | September 2007

    This working paper examines the legacy of Keynes’s General Theory of Employment, Interest, and Money (1936) on the occasion of the 70th anniversary of its publication and the 60th anniversary of Keynes’s death. The paper incorporates some of the latest research by prominent followers of Keynes, presented at the 9th International Post Keynesian Conference in September 2006.

  • Working Paper No. 509 | August 2007

    This paper begins with an examination of various ways of measuring unemployment and, borrowing ideas from the poverty measurement literature, proposes four new general unemployment indices. The first of these is parallel to the Sen poverty index; the second, to the Sen index’s generalization by Shorrocks; the third, to the FGT poverty index; and the fourth, to the Watts poverty index. The authors then present an empirical illustration based on Swiss data compiled at the state, or canton, level, using the so-called Shapley decomposition to determine the contribution of three components—the traditional unemployment rate, the average unemployment duration, and the inequality in the unemployment durations—to the differences between the values of the four proposed indices, both within a given canton and within Switzerland as a whole. The paper concludes with a discussion of the assumptions made about the maximum unemployment duration for the purposes of the study, and their impact on the results obtained.

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    Author(s):
    Joseph Deutsch Yves Flückiger Jacques Silber

  • Working Paper No. 505 | July 2007
    Spatial Dimensions and Fiscal Implications

    Since its enactment in 2005, the National Rural Employment Guarantee Act (NREGA) has been implemented in 200 districts in India. Based on state-by-state employment demand-supply data and the use of funds released under NREGA, it is found that, although it is a demand-driven scheme, there are significant interstate differences in the supply of employment. The supply falls far short of demand, particularly in low-income states, where the organizational capacity to implement the scheme is limited. It is also noted that the NREGA-induced fiscal expansion has not contributed to higher fiscal imbalances. The consolidation of other public employment programs into NREGA has actually kept the total allocation of funds by the central government at a level no higher than those reached in the fiscal years 2002–03 to 2005–06. The NREGA fund utilization ratio varies widely across states and is abysmally low in the poorer states. Since the flow of resources to individual states is based on approved plans outlining employment demand, it may turn out to be regressive for the poorer states with low organizational capacity in terms of planning and management of the schemes, especially labor demand forecasting.

  • Working Paper No. 499 | May 2007
    A Plan for Tunisia

    This paper establishes the financial feasibility of an employer-of-last-resort (ELR) program in a small developing country like Tunisia. It argues that an ELR-led economic development policy is vastly superior to the traditional import substitution industrialization (ISI), export-led, and FDI-led development models, all of which Tunisia has adopted without much success in reducing unemployment. Despite outperforming its peers in terms of macroeconomic stability, Tunisia’s official unemployment rate still hovers around 15 percent, with two-thirds of first-time job seekers having university degrees. The paper demonstrates that a well-targeted ELR program can be gradually introduced over a six-year period to remedy this problem by reclaiming sovereignty over the country’s domestic monetary and fiscal policies under a floating exchange rate regime. The estimated ELR net wage bill would be around 2.7 percent of GDP; however, spending by ELR workers would offset program costs, and the net effect on GDP would be an increase of about 3.6 percent. The paper concludes by proposing a set of complementary policy reforms that must accompany an ELR program to ensure long-term growth sustainability along with full employment and price stability.

  • Working Paper No. 498 | May 2007
    A Survey of Theories and Policy Experiences

    This working paper provides a survey of the theoretical underpinnings for the various employment guarantee schemes, and discusses full employment policy experiences in the United States, Sweden, India, Argentina, and France. The theoretical and policy developments are delineated in a historical context. The paper concludes by identifying some questions that still need to be addressed in the context of the global political economy.

  • Public Policy Brief No. 87 | November 2006
    Toward Convergence and Full Employment

    Unemployment in the European Union (EU) is a serious problem that threatens to disrupt the integration of accession countries, the character of individual countries, and the continued existence of the EU. European integration poses a huge conundrum for European employment because the conventional theory explaining unemployment in Europe—labor market rigidities—is wrong. According to Senior Scholar James K. Galbraith, the application of this policy will not cure European unemployment, but it could destroy the economic promise of the EU for its poorer regions and the accession countries.

  • Public Policy Brief Highlights No. 87A | November 2006
    Toward Convergence and Full Employment
    Unemployment in the European Union (EU) is a serious problem that threatens to disrupt the integration of accession countries, the character of individual countries, and the continued existence of the EU. European integration poses a huge conundrum for European employment because the conventional theory explaining unemployment in Europe—labor market rigidities—is wrong. According to Senior Scholar James K. Galbraith, the application of this policy will not cure European unemployment, but it could destroy the economic promise of the EU for its poorer regions and the accession countries.

  • Working Paper No. 477 | October 2006
    Explaining the Organizational Structure of Large Law Firms

    We study the economics of employment relationships through theoretical and empirical analyses of an unusual set of firms, large law firms. Our point of departure is the "property rights" approach that emphasizes the centrality of ownership's legal rights to control important, nonhuman assets of the enterprise. From this perspective, large law firms are an interesting and potentially important object of study, because the most valuable assets of these firms take the form of knowledge—particularly knowledge of the needs and interests of clients. We argue that the two most distinctive organizational features of large law firms, the use of "up or out" promotion contests and the practice of having winners become residual claimants in the firm, emerge naturally in this setting. In addition to explaining otherwise anomalous features of the up-or-out partnership system, this paper suggests a general framework for analyzing organizations where assets reside in the brains of employees.

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    Author(s):
    James B. Rebitzer Lowell J. Taylor

  • Working Paper No. 475 | August 2006
    Searching for the Missing Link

    This paper examines the proposition that capital stock relative to aggregate output has been an important variable in the determination of the Non-Accelerating Inflation Rate of Unemployment (NAIRU) over the last four decades. The authors present new empirical evidence that lends strong support to the claim that the aggregate capital-output ratio, the real price of imports, and aggregate capacity utilization were determinants of the NAIRU during the period. The same evidence also shows that technical progress and changes in long-term unemployment did not affect the NAIRU. We believe this evidence suggests that, insofar as the aggregate capital-output ratio is affected by changes in real interest rates, the stance of monetary policy is one determinant of the NAIRU.

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    Author(s):
    Ines Perez-Soba Aguilar Elena Marquez de la Cruz Ana Rosa Martinez-Canete Alfonso Palacio-Vera

  • Working Paper No. 470 | August 2006

    Employer-provided health benefits for workers who retire before age 65 has fallen over the last decade. We examine a cohort of male workers from the Health and Retirement Survey to explore the dynamics of retiree health benefits and the relationship between retiree health benefits and retirement behavior. A better understanding of this relationship is important to the policy debate over the best way to increase health coverage for older Americans without reducing work incentives. Concerning the dynamics at work, we find that, between 1992 and 1996, 24 percent of full-time workers who had retiree health benefits lost their coverage, while 15 percent of full-time workers who lacked coverage gained it. Also, of the full-time employed men who were covered by retiree health benefits in 1992 and had retired by 1996, 3 percent were uninsured, and 15 percent were covered by health insurance other than employer-provided insurance. On the relationship between retiree health benefits and retirement, we find that workers with retiree benefits were 29 to 55 percent more likely to retire than those without. We also find that workers who are eligible for retiree health benefits tend to take advantage of them when they are relatively young

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    Author(s):
    James Marton Stephen A. Woodbury

  • Working Paper No. 469 | August 2006
    Tax Expenditures, Costs, and Implications for Middle-Class Elderly

    By any measure, pension coverage should be at an all-time high: the nation is richer and workers are older. However, the pension world is a paradox, as pension security falls for middle-class workers and pension spending increases. The United States government directly and indirectly spends more than half a trillion dollars on the elderly each year. Direct spending is mainly through Social Security and indirect spending through the tax code's special treatment of employer and personal retirement plans. The tax favoritism is an astonishing one fourth of the direct spending. But the nature of the tax subsidy is changing. The tax subsidy for 401(k) plans, which are beneficial to employers and higher-income workers, is overtaking that for traditional pensions, which cover lower-income workers and help expand pension coverage. Since tax policy is designed to meet a public purpose, perhaps the more than $100 billion dollars per year spent indirectly on pensions could be better spent? Using tax expenditure data from the federal budget and data from both employers' surveys (the Chamber of Commerce and the National Compensation Survey) and workers' surveys (the Bureau of the Census's Current Population Survey), this study reflects on alternative pension polices that transform the tax subsidy and expand Social Security and traditional pensions. Such a sharp change in federal policy may stem the loss of pension security of middle-class workers and expand it for lower-income workers.

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    Author(s):
    Teresa Ghilarducci

  • Working Paper No. 437 | January 2006
    Toward Effective Implementation of the Act

    The National Rural Employment Guarantee Act of 2005 is a major development in the history of poverty reduction strategies and rural development policies in India. Though the successful passage of the Act is due to the long struggle by NGOs, academics, and some policymakers, its successful implementation is a much bigger challenge. Effective implementation of the Act requires that labor-intensive works be planned for the needy poor on a continuous basis; that the right kind of assets are undertaken to promote the development of the local/regional economy; and that the labor-absorbing capacity of the mainstream economy be raised and assets maintained well and used productively to generate benefits for the poor, as well as to promote pro-poor economy growth.

    The past experiences of wage employment programs in India, however, suggest that there are several challenges ahead. These include strengthening the planning component of the program, particularly planning for infrastructure and natural resource management; coordination and conversion of the Employment Guarantee Scheme with ongoing programs; ensuring supply of labor on EGS works; promoting equity in the ownership of the assets; and using assets to improve the employment generation in the long run. This paper discusses these challenges and observes that the Employment Guarantee Act should not be treated as one more poverty alleviation program, but should be seen as an opportunity to eradicate the worst kind of poverty and to empower the poor and promote pro-poor growth of the Indian economy.

  • Working Paper No. 432 | December 2005
    Some Evidence Concerning the Micro-foundations of a High Technology Cluster

    Observers of Silicon Valley’s computer cluster report that employees move rapidly between competing firms, but evidence supporting this claim is scarce. Job-hopping is important in computer clusters because it facilitates the reallocation of talent and resources toward firms with superior innovations. Using new data on labor mobility, we find higher rates of job-hopping for college-educated men in Silicon Valley’s computer industry than in computer clusters located out of the state. Mobility rates in other California computer clusters are similar to Silicon Valley’s, suggesting some role for features of California law that make non-compete agreements unenforceable. Consistent with our model of innovation, mobility rates outside of computer industries are no higher in California than elsewhere.

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    Author(s):
    Bruce Fallick Charles A. Fleischman James B. Rebitzer

  • Policy Note 2005/1 | January 2005
    The job numbers in the United States and around the globe continue to look bleak. Not only are the absolute numbers dismal, but also job growth has dragged on with no hope for a substantial change in prospects. This situation supports the view that we are facing a long-term problem that requires critical and creative problem-solving responses. Since unemployment is the major cause of poverty, many of our most pressing social problems are directly or indirectly related to joblessness. Forstater argues that not only the quantity but also the quality of jobs is at issue.

  • Policy Note 2004/1 | April 2004

    Inflation targeting has become an increasingly popular strategy for setting monetary policy during the last decade. While no countries had formal inflation targets before 1990, currently 22 countries use inflation targeting. One notable exception is the United States, where the Federal Reserve has a dual mandate to pursue both price stability and full employment. Some economists advocate inflation targeting for the United States, partly because they fear that otherwise the Fed will try to push unemployment below its “natural rate”—its lowest sustainable level—and trigger accelerating inflation. However, the natural rate theory has proven to be a poor guide for policy making over the last 10 years. Unemployment in 2000 fell two percentage points below estimates of the natural rate without spurring inflation. Since inflation targeting derives its justification largely from the theory of the natural rate, it is questionable whether the United States should switch to an inflation-targeting regime. These doubts are reinforced by the manifest success of monetary policy under the dual mandate.

  • Working Paper No. 390 | September 2003

    Previous work on entrepreneurship and wealth has documented that entrepreneurial households are wealthier and have higher wealth mobility. However, the literature has not paid attention to the components of wealth change. Furthermore, endogeneity problems in the measurement of the interaction between saving rates and entrepreneurship are not well addressed.

    In this paper, by reexamining the relationship between entrepreneurship and household wealth more rigorously, I show that while entrepreneurial households save more out of their income, it is not true that they experience higher rates of wealth increase or capital gains. In my analyses, I control for the endogeneity between the decision to start a business and household savings. I find some evidence that the decision to become a business owner is endogenous to the rate of capital gains and to the rate of saving (out of income). My results also show that households do not save more in order to start a business. Therefore, the evidence suggests that business owners save more, but not that those who save more become business owners.

  • Working Paper No. 389 | September 2003
    Implications for Social Security Reform

    When it comes to retirement income policy, there is a general perception that workers have full 40-year working careers before retiring. Further, it is generally assumed that workers with low lifetime earnings have low earnings in each year during a normal working career. The basic research question is why do some workers have low lifetime earnings? Is it due to low earnings in every year, or is it due to some years of no earnings combined with years of relatively modest earnings? The key findings from this paper are: (1) most individuals with minimum (and subminimum) wage lifetime average earnings are women, and (2) most of these women have low lifetime average earnings because of fewer years with earnings, rather than low earnings in each year of a 40-year working career.

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    Author(s):
    Thomas L. Hungerford

  • Working Paper No. 375 | March 2003

    Two issues may have a tremendous impact on the adequacy of retirement income for today's workers: the growth of 401(k) pension plans and the possible privatization of Social Security. Workers are becoming increasingly responsible for the adequacy of their retirement income by determining how their retirement savings are invested. This paper examines the investment choices of workers covered by a defined contribution pension plan with responsibility for investments, specifically incorporating self-selection into DC pension plans. The results suggest that (1) current DC plan participants tend to be more aggressive investors than the general work force would be; (2) workers in certain demographic groups tend to invest their pension assets more conservatively than others; and (3) selection is present but appears to be economically unimportant.

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    Author(s):
    Thomas L. Hungerford

  • Working Paper No. 373 | February 2003
    Evidence from East Asia

    This study explores the impact of competition from international trade on the gender wage gap in Taiwan and South Korea between 1980 and 1999. The dynamic implications of Becker's 1959 theory of discrimination lead one to expect that increased competition from international trade reduces the incentive for employers to discriminate against women. This effect should be more pronounced in concentrated sectors of the economy, where employers can use excess profits to cover the costs of discrimination. Alternatively, wage discrimination may increase with growing trade limiting women's ability to achieve wage gains. The empirical strategy controls for differences in market structure across industries in order to isolate the effect of competition from international trade. Estimation results are not consistent with Becker's theory, as greater international competition in concentrated sectors is associated with larger wage gaps between men and women.

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    Author(s):
    Günseli Berik Yana Van der Meulen Rodgers Joseph E. Zveglich Jr.

  • Working Paper No. 336 | August 2001
    The Evidence

    The conventional wisdom is that high European unemployment is the result of job markets that are rigid and inflexible. This paper presents new empirical evidence that challenges this received wisdom. A major contribution of the paper is that it fully accounts for both micro- and macroeconomic factors, as well as taking account of cross-country economic spillovers. The evidence shows that macroeconomic factors dominate in explaining unemployment. These factors are robust to changes in empirical specification. Labor market institutions do matter for unemployment, but not in the way conventionally spoken about. Unemployment benefits and union density have no effect. The level of wage bargaining coordination and the extent of union wage coverage both matter, but if properly paired they can actually reduce unemployment. Lower tax burdens can also reduce unemployment, but a far more cost-effective fiscal approach is to increase spending on active labor market policies. The bottom line is that high unemployment in western Europe has been the result of self-inflicted dysfunctional macroeconomic policy. European policymakers adopted a course of disinflation, high real interest rates, and slower growth that raised unemployment. Moreover, they all did so at the same time, thereby generating a wave of trade-based spillovers that generated a continentwide macroeconomic funk and further raised unemployment.

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    Author(s):
    Thomas I. Palley

  • Working Paper No. 331 | May 2001

    Using both time-series and pooled cross-section, time-series data for 44 industries in the United States over the period 1947–97, the authors find no evidence to support the idea that the growth of skills or educational attainment had any statistically significant effect on growth of earnings. However, earnings growth is found to be positively related to overall productivity growth and equipment investment, while computerization and international trade both had a retardant effect on earnings.

  • Book Series | February 2001
    Edited by William Lazonick and Mary O’Sullivan

    How can we explain the persistent worsening of the income distribution in the United States in the 1980s and 1990s? What are the prospects for the reemergence of sustainable prosperity in the American economy over the next generation? In addressing these issues, this book focuses on the microeconomics of corporate investment behavior, especially as reflected in investments in integrated skill bases, and the macroeconomics of household saving behavior, especially as reflected in the growing problem of intergenerational dependence of retirees on employees. Specifically, the book analyzes how the combines pressures of excessive corporate growth, international competition, and intergenerational dependence have influenced corporate investment behavior over the past two decades. Part One sets out a perspective on how corporate investment in skill bases can support sustainable prosperity. Part Two presents studies of investments in skill bases in the machine tool, aircraft engine, and medical equipment industries. Part Three provides a comparative and historical analysis of corporate governance and sustainable prosperity in the United States, Japan, and Germany. By integrating a theory of innovative enterprise with in-depth empirical analyses of industrial development and international competition, Corporate Governance and Sustainable Prosperity explores the relation between changes in corporate resource allocation and the persistence of income inequality in the United States in the 1980s and 1990s. Contributors to the volume include Beth Almeida, Robert Forrant, Michael Handel, William Lazonick, Philip Moss, Mary O’Sullivan, and Chris Tully. Editors Lazonick and O’Sullivan are Levy Institute research associates, as is contributor Handel.

    Published By: Palgrave Macmillan, Ltd.

  • Policy Note 2000/2 | February 2000

    Full employment without inflation can continue—with the right leadership, prudent policy changes to manage the dangers, and cooperation from all branches of the government.

  • Public Policy Brief No. 57 | December 1999
    Right-to-Work Laws, Unionization, and the Minimum Wage

    Union strength is capable of boosting wages for workers at the low end of the income scale. Even when differences in education and industry type are accounted for, workers in right-to-work states have a greater probability of earning close to the minimum wage than workers in states with relatively high union density. The decline of unionization requires that other labor market institutions, mainly the minimum wage, be used to improve the distribution of income in order to combat the continuing growth of inequality in the United States.

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    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief Highlights No. 57A | December 1999
    Right-to-Work Laws, Unionization, and the Minimum Wage
    Union strength is capable of boosting wages for workers at the low end of the income scale. Even when differences in education and industry type are accounted for, workers in right-to-work states have a greater probability of earning close to the minimum wage than workers in states with relatively high union density. The decline of unionization requires that other labor market institutions, mainly the minimum wage, be used to improve the distribution of income in order to combat the continuing growth of inequality in the United States.
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    Associated Program:
    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief Highlights No. 53A | July 1999
    Full Employment Policy: Theory and Practice
    Claims that the nation has reached full employment take for granted the need for a reserve pool of labor to maintain price stability and labor market flexibility. But are millions of jobless and underemployed workers the best we can do in these times of economic expansion? And what will happen when the inevitable downturn comes? Reduction of the workweek and employment subsidies have been proposed to achieve higher employment, but neither is sure to raise employment and both may have serious side effects. A public service employment program that offers jobs at a fixed wage to all who are willing and able to work can provide full employment without inflationary pressures and with labor market flexibility, preserve workers’ skills, contribute valuable public services, and be relatively inexpensive.

  • Working Paper No. 271 | July 1999

    This paper interprets the New Jersey minimum wage studies of Card and Krueger and their critics, Neumark and Wascher, through a scheduling model. The former found an increase in the number of workers in New Jersey fast-food restaurants after the state minimum wage was increased, while the latter found a decline in the total payroll hours of New Jersey restaurants. The scheduling model predicts that firms will substitute workers for hours per worker after a wage increase, which is consistent with both studies. Evidence from a subset of restaurants that reported both workers and hours data to Neumark and Wascher supports this interpretation. The New Jersey minimum wage appears to have redistributed income effectively to the targeted population by raising wages and reducing weekly hours per worker by just over one hour without causing any job loss.

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    Author(s):
    Thomas R. Michl

  • Public Policy Brief No. 53 | July 1999
    Full Employment Policy: Theory and Practice

    Claims that the nation has reached full employment take for granted the need for a reserve pool of labor to maintain price stability and labor market flexibility. But are millions of jobless and underemployed workers the best we can do in these times of economic expansion? And what will happen when the inevitable downturn comes? Reduction of the workweek and employment subsidies have been proposed to achieve higher employment, but neither is sure to raise employment and both may have serious side effects. A public service employment program that offers jobs at a fixed wage to all who are willing and able to work can provide full employment without inflationary pressures and with labor market flexibility, preserve workers’ skills, contribute valuable public services, and be relatively inexpensive.

  • Policy Note 1999/6 | June 1999
    Lessons from the 1999 Levy Institute Survey of Small Business

    Survey responses make it clear the minimum wage can be raised. The question now is, How high can it be raised before serious employment consequences occur?

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    Associated Program:
    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief Highlights No. 51A | March 1999
    Levy Institute Survey of Hiring and Employment Practices
    The Levy Institute conducted a survey of small businesses to elicit information about their hiring and employment practices, especially the hiring of former welfare recipients; preferences regarding education, training, and other characteristics of potential employees; effects of increases in the minimum wage on employment decisions; and their responses to various forms of government wage and training subsidies. Analysis of the survey results indicates weaknesses in the assumptions on which recent welfare reform has been based. It also suggests a role for small business that has been overlooked. An active partnership between government and small business, involving incentives for hiring and training as well as mandates for welfare reduction, is required if former welfare recipients are to become independent and productive members of the labor force.
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    Associated Program:
    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 267 | March 1999
    Implications for Income Distribution

    When the minimum wage was first enacted in 1938, the fiercest opposition came from the South, where wages were considerably lower that in the industrial North. Today, that opposition is found to emanate from states that have right-to-work laws (regardless of location). Using census data from the Integrated Public Use Microdata Series (IPUMS) for the years 1940 to 1990, this paper looks at workers earning around the minimum wage by region and industry. It shows that, controlling for education and industry type, wages tend to be depressed more in states with right-to-work legislation than in high union density states. These effects on the wage structure have implications for the distribution of income.

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    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief No. 51 | March 1999
    Levy Institute Survey of Hiring and Employment Practices

    The Levy Institute conducted a survey of small businesses to elicit information about their hiring and employment practices, especially the hiring of former welfare recipients; preferences regarding education, training, and other characteristics of potential employees; effects of increases in the minimum wage on employment decisions; and their responses to various forms of government wage and training subsidies. Analysis of the survey results indicates weaknesses in the assumptions on which recent welfare reform has been based. It also suggests a role for small business that has been overlooked. An active partnership between government and small business, involving incentives for hiring and training as well as mandates for welfare reduction, is required if former welfare recipients are to become independent and productive members of the labor force.

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    Associated Program:
    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief Highlights No. 50A | February 1999
    The Job Opportunity Approach to Full Employment
    Central banks, national governments, and international organizations have resisted policies that would promote full employment because high employment and high capacity utilization are associated with structural rigidities that result in sluggish growth, inflationary pressures, and other undesirable consequences. What has been almost entirely overlooked is the way in which public sector activity can enhance flexibility with regard to labor, capital goods, natural resources and environmental protection, methods of production, and location of economic activity. The job opportunity approach makes strategic use of public sector activity to create truly full employment, thereby reducing the social and economic costs of unemployment, and to promote projects designed to be consistent with broad macroeconomic goals and social values.

  • Public Policy Brief No. 50 | February 1999
    The Job Opportunity Approach to Full Employment

    Central banks, national governments, and international organizations have resisted policies that would promote full employment because high employment and high capacity utilization are associated with structural rigidities that result in sluggish growth, inflationary pressures, and other undesirable consequences. What has been almost entirely overlooked is the way in which public sector activity can enhance flexibility with regard to labor, capital goods, natural resources and environmental protection, methods of production, and location of economic activity. The job opportunity approach makes strategic use of public sector activity to create truly full employment, thereby reducing the social and economic costs of unemployment, and to promote projects designed to be consistent with broad macroeconomic goals and social values.

  • Public Policy Brief No. 49 | December 1998
    Productive and Financial Challenges

    The postwar system of corporate governance in Germany is being threatened by the failure of some industries to maintain their competitive position (with resulting significant job losses) and pressures for financial liquidity driven by those who have accumulated substantial financial holdings, institutions competing for control of those holdings, and those concerned about the funding of the pension system. The strength of the competitors (mainly the Japanese) lies not in cost differences, but in their capabilities, based on financial commitment and organizational integration, to innovate and thereby to build the long-run future of the corporation. If German labor, finance, and corporate managers each insist on pursuing independent strategies to extract returns from industrial enterprises and if corporations replace investment in innovation with shareholder value as the basis for corporate decision making, German industry may be unable to regenerate the basis of sustainable prosperity.

  • Public Policy Brief No. 48 | December 1998
    Adapting to Financial Pressures for Change

    Despite the crisis in the Japanese financial sector, prolonged recession, and competitive challenges, Japan’s formidable productive system remains strong. Nevertheless, the system of corporate governance, which has pursued a strategy of retaining corporate revenues and reallocating labor resources and returns to labor in order to invest in productive capabilities, faces short-term pressures from a transformation of the financial sector and long-term pressures from the growth of intergenerational dependence. Current reforms seek to generate funding for the pension system and profits for financial enterprises from international securities and money markets. These reforms seem to work within the corporate governance framework that emphasizes the retain-and-reallocate strategy, but the question is whether they will create powerful pressures to extract returns from the domestic economy, thereby affecting how corporations are managed and resources allocated.

  • Public Policy Brief Highlights No. 49A | December 1998
    Productive and Financial Challenges
    The postwar system of corporate governance in Germany is being threatened by the failure of some industries to maintain their competitive position (with resulting significant job losses) and pressures for financial liquidity driven by those who have accumulated substantial financial holdings, institutions competing for control of those holdings, and those concerned about the funding of the pension system. The strength of the competitors (mainly the Japanese) lies not in cost differences, but in their capabilities, based on financial commitment and organizational integration, to innovate and thereby to build the long-run future of the corporation. If German labor, finance, and corporate managers each insist on pursuing independent strategies to extract returns from industrial enterprises and if corporations replace investment in innovation with shareholder value as the basis for corporate decision making, German industry may be unable to regenerate the basis of sustainable prosperity.

  • Public Policy Brief Highlights No. 48A | December 1998
    Adapting to Financial Pressures for Change
    Despite the crisis in the Japanese financial sector, prolonged recession, and competitive challenges, Japan’s formidable productive system remains strong. Nevertheless, the system of corporate governance, which has pursued a strategy of retaining corporate revenues and reallocating labor resources and returns to labor in order to invest in productive capabilities, faces short-term pressures from a transformation of the financial sector and long-term pressures from the growth of intergenerational dependence. Current reforms seek to generate funding for the pension system and profits for financial enterprises from international securities and money markets. These reforms seem to work within the corporate governance framework that emphasizes the retain-and-reallocate strategy, but the question is whether they will create powerful pressures to extract returns from the domestic economy, thereby affecting how corporations are managed and resources allocated.

  • Working Paper No. 259 | December 1998

    Year-to-year economy-wide measures of income distribution, such as the Gini coefficient, are rarely available for long periods except in a few developed countries, and as a result few analyses of year-to-year changes in inequality exist. But wage and earnings data by industrial sectors are readily available for many countries over long time frames. This paper proposes the application of the between-group component of the Theil index to data on wages, earnings, and employment by industrial classification in order to measure the evolution of wage or earnings inequality through time. We provide formal criteria under which such a between-group Theil statistic can reasonably be assumed to give results that also track the (unobserved) evolution of inequality within industries. While the evolution of inequality in manufacturing earnings cannot be taken as per se indicating the larger movements of inequality in household incomes, including those outside the manufacturing sector, we argue on theoretical grounds that the two will rarely move in opposite directions. We conclude with an empirical application to the case of Brazil, an important developing country for which economy-wide Gini coefficients are scarce, but for which a between-industries Theil statistic may be computed on a monthly basis as far back as 1976.

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    Author(s):
    Pedro Conceição James K. Galbraith

  • Working Paper No. 258 | December 1998
    Theory and Practice

    In 1998, the United States' unemployment rate was at its lowest level since the late 1960s. Yet the nation's employment problem is still far from solved. Although many economists assume that unemployment tends toward a natural rate below which it cannot go without creating inflation, this paper asks whether the current employment levels are the best that can be achieved in times of prosperity and whether current employment policies will be able to deal with the challenges of the next downturn. To evaluate these questions, the author examines the relative merits of three proposed strategies to improve the employment situation-a reduced workweek, employment subsidies, and a public service job opportunity program-to see if they will meet the challenges of upholding an individual's basic right to job while not stimulating inflation. He finds that a shorter workweek and wage subsidies both have failed to meet one or both of these challenges, but that a public service job opportunity program, such as the "employer of last resort policy," would satisfy both the full employment and noninflationary criteria.

  • Working Paper No. 256 | November 1998
    Progressive Reformers and the Constitutional Jurisprudence of “Liberty of Contract”

    During the Progressive period of American history the debate over the minimum wage was often between those who clung to traditional economic theory as a reason for not having a minimum wage and those who saw the efficiency-wage benefits of adopting one. Although the latter argument proved quite effective in swaying many state legislatures, it may have also been a strategic argument for circumventing the Supreme Court's particular understanding of "liberty of contract." Under this doctrine, states could not pass any legislation mandating a minimum wage unless a compelling case could be made that such a wage would definitely serve the larger public interest. This paper argues that although efficiency-wage arguments might have been appealing to liberal reformers of that time, the arguments were ultimately used as a disingenuous means by which "liberty of contract" arguments could be circumvented.

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    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief No. 45 | October 1998
    Job Opportunity for the Less Skilled

    During the recent robust expansion only 700,000 of the almost 12 million jobs created went to the half of the population that does not have at least some college education. Even though the number of officially unemployed fell to less than 4 million in the 25-and-over age group, there remain in that group over 26 million potentially employable workers—the combined number of those who are actively seeking work (and are counted as officially unemployed) and those who are currently out of the labor force but would be willing to participate. Since expansion has not proven sufficient to remedy this intolerably high level of wasted human resources, well-targeted, active labor market policies are required. One such policy is a job opportunity program that “hires off the bottom,” providing minimum-wage jobs for all those who are ready, willing, and able to work. The program would create a buffer stock of labor from which employers could hire during upturns instead of bidding up the wages of the already employed, and thus would offer both full employment and price stability.

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    Author(s):
    Marc-André Pigeon L. Randall Wray

  • Public Policy Brief Highlights No. 45A | October 1998
    Job Opportunity for the Less Skilled
    During the recent robust expansion only 700,000 of the almost 12 million jobs created went to the half of the population that does not have at least some college education. Even though the number of officially unemployed fell to less than 4 million in the 25-and-over age group, there remain in that group over 26 million potentially employable workers—the combined number of those who are actively seeking work (and are counted as officially unemployed) and those who are currently out of the labor force but would be willing to participate. Since expansion has not proven sufficient to remedy this intolerably high level of wasted human resources, well-targeted, active labor market policies are required. One such policy is a job opportunity program that "hires off the bottom," providing minimum-wage jobs for all those who are ready, willing, and able to work. The program would create a buffer stock of labor from which employers could hire during upturns instead of bidding up the wages of the already employed, and thus would offer both full employment and price stability.

  • Conference Proceedings | September 1998

    The purpose of this symposium, held September 24, 1998, at the Levy Institute’s research and conference center on the campus of Bard College in Annandale-on-Hudson, New York, was to explore the causes and consequences of the persistence of poverty, and to examine policies that might rectify the inequitable distribution of the gains of economic success.

  • Public Policy Brief No. 42 | August 1998
    Linking the Minimum Wage to Productivity

    The fact that every change in the minimum wage requires an act of Congress means that debate over the wisdom of having a minimum is repeatedly returned to the political arena. As inflation continues to erode the value of the minimum wage, each legislative delay means that a larger increase is required. The larger the increase, the more resistance to its passage, so that by the time Congress acts, the political compromise is an increase that is too little and too late to be of much help in lifting workers out of poverty. Automatic adjustment of the wage, with increases keyed to measures of private sector productivity, would eliminate this problem. With the institution of a mechanism that provides regular and incremental increases, Congress will no longer be forced to revisit the issue, employers will not be confronted by sudden and large increases, and the value of the wage will be maintained.

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    Author(s):
    Oren Levin-Waldman

  • Public Policy Brief Highlights No. 42A | August 1998
    Linking the Minimum Wage to Productivity
    The fact that every change in the minimum wage requires an act of Congress means that debate over the wisdom of having a minimum is repeatedly returned to the political arena. As inflation continues to erode the value of the minimum wage, each legislative delay means that a larger increase is required. The larger the increase, the more resistance to its passage, so that by the time Congress acts, the political compromise is an increase that is too little and too late to be of much help in lifting workers out of poverty. Automatic adjustment of the wage, with increases keyed to measures of private sector productivity, would eliminate this problem. With the institution of a mechanism that provides regular and incremental increases, Congress will no longer be forced to revisit the issue, employers will not be confronted by sudden and large increases, and the value of the wage will be maintained.
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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 249 | August 1998

    This paper uses industrial wage data and a systematic if unconventional selection of methods to examine changes in the inter-industry structure of wages between 1920 and 1947. We first sort among the available data on wage change by industry and occupation for blocs that exhibit common patterns of wage changes over time, reducing the 83 time series available to us into eight distinct groups. Following this, we present a systematic decomposition of the sources of wage variation across groups and through time. The fact that our cluster analysis relies on wage-change observations in percentage form implies that our discriminant analysis produces eigenvectors in time-series format; thus each eigenvector is itself an artificially constructed economic time series. We identify four such forces that together explain 97 percent of the variance in wage change across groups, and identify variables in the historical record that appear to correspond closely to these forces.

    This raises a beguiling possibility. It may be that simple explanations account for most of the relative-wage changes during the years under study. In a reversal of the usual notions of micro-to-macro causality, it may be that a small number of macroeconomic variates account for a large proportion of distributional changes.

    In a final section, we compute an estimate of the evolution of inequality in the wage structure over time. This estimate is independent of our clustering procedures and of our discriminant analysis, and is measure is well suited to regression analysis. Using it, we test a simple macroeconomic explanation of inequality in the wage structure. The results appear to support the argument that well-known macroeconomic and social developments, including changes in the unemployment rate, in strikes, and in the exchange rate, played the determining roles in the evolution of wage inequality during this time.

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    Author(s):
    Thomas Ferguson James K. Galbraith

  • Working Paper No. 245 | July 1998

    This paper argues that a guaranteed income is not only consistent with the principle of reciprocity but is required for reciprocity. This conclusion follows from a three-part argument. First, if a guaranteed income is in place, all individuals have the same opportunity to live without working. Therefore, those who choose not to work do not take advantage of a privilege that is unavailable to everyone else. Second, in the absence of an unconditional income, society is, in effect, applying the principle "He who does not work, will not eat." If the application of this principle is to be consistent with reciprocity, it must be applied to everyone. Most modern industrial societies exempt many citizens from that choice. For example, the owners of external assets do not face the work-or-starve choice and do take advantage of a privilege that is not available to others. An unconditional guaranteed income is one way to eliminate that violation of reciprocity. Third, this paper addresses the criticism that the guaranteed income exploits middle-class workers by demonstrating that a basic income will have a positive effect on wages, which will at least partially counteract the effect of the taxes needed to pay for it.

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    Author(s):
    Karl Widerquist

  • Working Paper No. 243 | July 1998

    How members of Congress vote on increases in the minimum wage is a function of several factors, most notably party affiliation and constituent interest. But also among those factors is the existence of "right-to-work" laws in the representative's state and the presence of labor unions, especially as they represent a voting constituency. This paper examines congressional voting patterns on the minimum wage from 1949, when the first vote to increase the wage occurred, to 1996, when the last vote occurred, and finds a relationship between union strength and positive voting, a relationship between "right-to-work" states and negative voting, and a decline in the significance of unions as a factor affecting congressional voting as unionism has declined.

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 238 | June 1998

    This paper explores some of the links between macroeconomic policy and industrial strategy. The perspective of the present paper is to emphasize the role of the output and investment activities of enterprises rather than the general focus on the labor market in the determination of economic performance. We have explored this aspect in some detail in connection with the inflation barrier, and argue that such a barrier should be viewed in terms of a lack of capacity. We briefly review the balance of trade constraint on growth and employment. The overall implications of those two sets of analyses is that macroeconomic performance would be enhanced by appropriate industrial strategy, and that inappropriate macroeconomic policies will damage industrial performance. Policies designed to restrain inflation by lowering the level of aggregate demand will tend to depress investment and harm capacity. Improved industrial performance requires a climate conducive to investment and research and development, which in turn depends on, inter alia, high and stable levels of aggregate demand.

  • Public Policy Brief Highlights No. 39A | May 1998
    The Growth in Work Hours
    Is the current labor market as tight as official statistics would seem to indicate? If incumbent workers increase their hours of work, it is irrelevant to the unemployment rate, but hardly irrelevant to the level of labor supply. The authors of this brief find that job insecurity and stagnating wages have made Americans willing to work those extra hours to build a financial cushion, and a 1 percent increase in hours worked per worker for a fixed labor supply is equivalent in terms of labor supply to a 1 percent increase in the number of workers. This more realistic picture of labor supply has important implications for expectations that welfare recipients can easily find jobs, for reforms in labor market statistics to provide better information, and for the direction of monetary policy.
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    Author(s):
    Barry Bluestone Stephen Rose

  • Working Paper No. 237 | May 1998

    The mean duration of unemployment approximately doubled in the United States between the early 1950s and the mid-1990s, with most of the increase occurring since the early 1970s. Using a simple model linking the average duration of unemployment with the speed of technical change, and aggregate time-series data, the authors find strong evidence that both the rate of total-factor productivity growth and investment in office, computing, and accounting equipment (OCA) per employee have a significant positive effect on mean unemployment duration. Moreover, literally all of the two-thirds rise in mean unemployment duration between 1971 and 1994 (two similar points in the business cycle) can be attributed to increases in OCA investment.

  • Public Policy Brief No. 39 | May 1998
    The Growth in Work Hours

    Is the current labor market as tight as official statistics would seem to indicate? If incumbent workers increase their hours of work, it is irrelevant to the unemployment rate, but hardly irrelevant to the level of labor supply. The authors of this brief find that job insecurity and stagnating wages have made Americans willing to work those extra hours to build a financial cushion, and a 1 percent increase in hours worked per worker for a fixed labor supply is equivalent in terms of labor supply to a 1 percent increase in the number of workers. This more realistic picture of labor supply has important implications for expectations that welfare recipients can easily find jobs, for reforms in labor market statistics to provide better information, and for the direction of monetary policy.

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    Author(s):
    Barry Bluestone Stephen Rose

  • Policy Note 1998/4 | April 1998

    To what extent have small businesses hired former welfare recipients and what might induce them to hire more? The Levy Institute conducts a national survey of small firms in many industries to find out.

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    Author(s):
    Oren Levin-Waldman George W. McCarthy Jr.

  • Working Paper No. 230 | March 1998
    Studying the Demographic Outcomes of Ethnic Intermarriage in American History

    Little research has been done on the role of intermarriage in the blending of peoples in the American past, and even less has been done on the effect of past intermarriage on the ethnic identity of today's Americans. Senior Scholar Joel Perlmann sees value in studying intermarriage to show fault lines in society (social distance is larger across some divisions than others) and to examine the effect intermarriage ultimately has on assimilation. Perlmann asks, Is it assimilation that causes intermarriage or intermarriage that causes assimilation? As he sees it, the causality works in both directions: weakened ethnic allegiances are a source of intermarriage and intermarriage weakens ethnic allegiances./P>

  • Working Paper No. 229 | March 1998
    Bilingualism and Language Loss in the Second Generation

    Knowledge of English is near universal, and preference for that language is dominant among most immigrant nationalities. However, only a minority remain fluent in the parental languages, and there are wide variations among immigrant groups in the extent of their parental linguistic retention. These variations are important for theory and policy because they affect the speed of acculturation and the extent to which sizable pools of fluent bilinguals will be created by today’s second generation.

     

    The authors examine patterns of language adaptation in a sample of over 5,000 second-generation students in South Florida and Southern California, employing multivariate and multilevel analyses to identify the principal factors accounting for variation in foreign language maintenance and bilingualism. While a number of variables emerge as significant predictors, they do not account for differences across immigrant nationalities which become even more sharply delineated. A clear disjuncture exists between children of Asian and Hispanic backgrounds whose parental language maintenance and bilingual fluency vary significantly. Reasons for this divergence are explored and their policy implications are discussed.

     

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    Author(s):
    Alejandro Portes Lingxin Hao

  • Working Paper No. 228 | March 1998

    Two family characteristics are consistently associated with educational attainment: the level of education of parents and the material resources available to support the education of the children. Hispanic parents have a lower level of education than any other group, and Hispanic income is lower than any other group except African Americans. Hispanic children are underrepresented in preschool. On average, by age 13 Hispanic children are two years behind non-Hispanic white students in English and four years behind in science. Hispanic high school students are less likely to be enrolled in college preparatory courses. The cumulative effect is that Hispanics, especially those of Mexican ancestry, are less likely to attend and complete college than any other ethnic group. Only 7 percent of Mexicans aged 25 to 37 have completed college. The reduced likelihood that native-born Hispanics will complete college does not point to a rapid assimilation into the American economic mainstream.

    The cause of the disparity is a combination of school, parental, cultural, and structural factors, including inadequate school financing, school segregation, low socioeconomic status of parents, and low educational level of parents. According to the author, the upgrading of the educational attainment of Hispanic children will require intervening beyond the classroom, and probably will require experimenting with more involvement of parents and communities—an effort that will have to be sustained over the long term.

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    Author(s):
    Georges Vernez

  • Working Paper No. 227 | March 1998

    Before the Japanese stock market crash of 1990, Japanese industry was a phenomenal success. A recent unemployment rate of under 4 percent, although low by world standards, is the highest Japan has experienced since the current mode of calculation began in 1953. Japan's industrial dominance, sustained prosperity, and commitment to lifetime employment seem to be in danger. Research Associate William Lazonick, of INSEAD and the Center for Industrial Competitiveness at the University of Massachusetts–Lowell, takes issue with this perception. He finds that the Japanese economy is in a better position than the United States to achieve sustainable prosperity, which he defines as "the spreading of the benefits of economic growth to more and more people over a prolonged period of time."

  • Working Paper No. 226 | February 1998

    Research Associate Mary O'Sullivan, of INSEAD and the Center for Industrial Competitiveness at the University of Massachusetts–Lowell, is investigating systems of corporate governance to find which lead to successful decisions for individual firms and for an economy as a whole. She believes that success requires a form of corporate governance that generates conditions that permit cumulative and collective learning, provides financial commitment to innovative investment, and integrates human and physical resources in the development and use of technology. She warns that because both the real and financial sectors are in a continual process of change, a successful system of governance cannot be determined in the abstract. Strategies that work at one time may not work at another. In her examination of corporate governance in Germany, she therefore makes a detailed study of postwar German economic history. According to O'Sullivan, financial commitment to innovative investment in

  • Working Paper No. 224 | January 1998
    What Prognosis for Good Jobs?

    While diagnostic imaging equipment is not by any means a typical industry, it offers an example of a rapidly changing, high technology sector—the kind of industry in which, according to many observers, United States manufacturers ought to excel. And indeed, for most of the 100-year history of this industry, American producers have led the field, generating engineering jobs aplenty and production jobs paying well above the average wage economywide. But in the last two decades, there have been dramatic transformations, which have changed the face of the industry and pose new challenges for US companies.

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    Author(s):
    Chris Tilly

  • Working Paper No. 220 | December 1997

    There has been widespread recognition of the existence of an "underclass" in American society, but no consensus on how to address the problem or even how to define it. The term was first coined in 1982 by New Yorker writer Ken Auletta, who used it broadly to include individuals with "behavioral and income deficiencies"; other definitions have been advanced by William Julius Wilson (1987), Erol Ricketts and Isabel Sawhill (1986), and Christopher Jencks (1992). In this working paper, Executive Director Dimitri B. Papadimitriou defines the underclass as residents in urban neighborhoods characterized by concentrated poverty, joblessness, violence, and a lack of institutions that support the community. He focuses specifically on the issue of urban poverty and the changes in the urban-poor population, and relates these changes to changes in the economic and policy landscape that has evolved over the last 15 years. Policy lessons drawn from other industrialized countries are also reviewed, and consideration is given to various proposals for public action to alleviate the problems of the underclass, including community development that can be achieved via a network of community banks.

  • Working Paper No. 219 | December 1997

    One of the principal problems with the minimum wage is that adjustments to it must be voted on by Congress. Although recent congressional action solves the immediate problem of restoring value to a wage that has otherwise failed to keep pace with inflation, it has not removed the issue from the political agenda. Every time Congress acts, it does so amidst debate about the legitimacy of the wage. When Congress does act, it is usually too little and too late. Therefore, it might be preferable to create an automatic mechanism for adjusting the minimum wage that would not only assume the value of a wage floor to society, but be tied to levels of productivity. Such an approach would accomplish two objectives. First, it would be in keeping with the economic argument that an artificial wage floor can lead to greater productivity, rather than to the disemployment effect assumed in traditional economic textbooks. Second, because increases to the wage would be regular and expected, unlike the shocks attendant to sporadic increases. In the end such a plan might not only lead to less political opposition, but to greater efficiency.

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 218 | December 1997

    Flexibility is a desirable feature of an economic system. Structural rigidities can result in sluggish growth and inflationary pressures; many economic models, however, display considerable system flexibility because of the use of unacceptably unrealistic assumptions. The primary "real-life" features endowing the system with flexibility are unemployment and excess capacity. While realistic, unemployment is economically costly and socially undesirable. In economic theory, there appears to be a trade-off between flexibility and realism. In reality, there appears to be a trade-off between flexibility and full employment. What has not been adequately recognized, however, is the degree to which policies are available that can promote higher levels of employment—and even full employment—without resulting in deleterious rigidity.

  • Working Paper No. 216 | November 1997

    Mary C. Waters, a professor of sociology at Harvard University, examines one way in which race matters in the United States by studying black children of immigrants in New York City. She demonstrates that the segregation and concentrated poverty in black neighborhoods have long-lasting effects on the acquisition of skills. These youth face direct employment discrimination by employers, and in response to discrimination many develop an oppositional attitude, refusing to take jobs in which they feel they must show deference to white supervisors.

    Waters examines the effects of segregation on black West Indian immigrants and their children in Brooklyn. Her data come from a 1990–92 field study in New York City of black immigrants to the United States from the Caribbean. Waters cites research showing that in the United States racial segregation for blacks is more extensive than for any other ethnic group. Active discrimination and institutional racism lead to fewer city services and less private investment in residentially segregated neighborhoods. Blacks are highly segregated at all levels of income. Middle- and working-class blacks, seeking better schools and less crime, purchase housing in predominantly white neighborhoods, but white flight and bank redlining lead to declining property values in those neighborhoods, decreasing investment, and increasing poverty and crime.

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    Author(s):
    Mary C. Waters

  • Working Paper No. 213 | November 1997
    Full Employment without Inflation

    Since the Employment Act of 1946 a stated policy of the United States government has been to pursue simultaneously high employment and stable prices. However, because many economists and policymakers do not believe that it is possible to have both high employment and stable prices, monetary policy has generally been geared, at least for the past two decades, toward increasing unemployment as a means to achieving stable prices. Senior Scholar L. Randall Wray demonstrates that stable prices and "truly full employment" are in fact compatible with each other if a properly targeted employment program is used.

  • Working Paper No. 211 | November 1997

    The distribution of income is conspicuous by its absence from most mainstream macroeconomic analysis. Visiting Scholar Malcolm Sawyer, of the University of Leeds, makes an effort to remedy this situation by discussing three aspects of the relationship between macroeconomics and the distribution of income: the effect of conflicts over the distribution of income on the NAIRU (nonaccelerating inflation rate of unemployment), the effect of the distribution of income on aggregate demand, and the effect of monetary policy on the distribution of income.

  • Working Paper No. 210 | November 1997
    A Jobs-level Analysis of the New York City Labor Market, 1979–1989

    The improvement in the relative economic status of African American workers in the 1960s and 1970s was reversed in the 1980s. During that decade immigration to the United States reached its highest level since the early part of this century, and many immigrants entered lesser-skilled labor markets, where most African American labor is concentrated. Yet, in what George Borjas terms an "unresolved puzzle," most researchers have been unable to find any significant negative wage effects caused by immigration. Research Associate David R. Howell and Elizabeth J. Mueller, both of the Robert J. Milano Graduate School of Management and Urban Policy of the New School for Social Research, point out that most of this research has used across-metropolitan tests despite the fact that immigrants tend to be concentrated in only a few metropolitan areas. Howell and Mueller attempt to solve the puzzle of the relationship between immigration and wages by focusing on specific jobs in specific metropolitan areas in which immigrants are concentrated.

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    Author(s):
    David R. Howell Elizabeth J. Mueller

  • Public Policy Brief No. 36 | October 1997
    Unemployment, Inflation, and the Job Structure

    The concept of a labor market, responding to familiar underpinnings of supply and demand, completely colors thought on the relationship between employment, wages, and inflation, according to James K. Galbraith. However, he asserts, wages are determined not by such market forces, but by what he calls the job structure—a complex set of status and pay relationships involving individual qualifications, job characteristics, and industry patterns. What is the meaning of the job structure for policy? Notions of natural rates of unemployment and inflationary barriers to full employment fade away. Supply-side measures can no longer been seen as adequate to deal with problems of unemployment and inequality. Questions of distribution of income and adjustment of the wage structure are returned to the political context. The active pursuit of full employment is returned to the list of respectable, and essential, policy goals.

  • Public Policy Brief Highlights No. 36A | October 1997
    Unemployment, Inflation, and the Job Structure
    The concept of a labor market, responding to familiar underpinnings of supply and demand, completely colors thought on the relationship between employment, wages, and inflation, according to James K. Galbraith. However, he asserts, wages are determined not by such market forces, but by what he calls the job structure—a complex set of status and pay relationships involving individual qualifications, job characteristics, and industry patterns. What is the meaning of the job structure for policy? Notions of natural rates of unemployment and inflationary barriers to full employment fade away. Supply-side measures can no longer been seen as adequate to deal with problems of unemployment and inequality. Questions of distribution of income and adjustment of the wage structure are returned to the political context. The active pursuit of full employment is returned to the list of respectable, and essential, policy goals.

  • Public Policy Brief Highlights No. 33A | September 1997
    No Easy Answers: Labor Market Problems in the United States versus Europe
    Rebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.

  • Public Policy Brief No. 33 | August 1997
    No Easy Answers: Labor Market Problems in the United States versus Europe

    Rebecca M. Blank considers how the flexibility of American labor markets and the regulation and redistribution policies of European labor markets may determine employers’ responses to worldwide economic transformations that result in increasing wage disparity in the United States and continuing high unemployment in Europe. She suggests that since the transformations will undoubtedly continue, governments should seek to develop plans to offset and reduce the adverse labor market effects.

  • Working Paper No. 206 | August 1997
    US Aircraft Engine Manufacturing and Sustainable Prosperity

    Aerospace, once the "crown jewel" of American manufacturing, is experiencing a structural decline characterized by a narrowing of the industry trade surplus, an increase in the foreign content of commercial aircraft and engines, a greater role for foreign companies in research and development, and a loss of "good jobs." Employment in aircraft engine manufacturing peaked in 1988 at over 141,000 employees and plummeted to just over 76,000 in 1995. Beth Almeida, of the Center for Industrial Competitiveness at the University of Massachusetts Lowell and the Department of Economics at the University of Massachusetts Amherst, examines the decline of the aircraft industry and attributes the slipping competitive advantage of the United States to the failure of American firms to extend organizational learning to the shop floor.

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    Author(s):
    Beth Almeida

  • Working Paper No. 204 | August 1997

    In May 1997, the official unemployment rate was 4.8 percent—the lowest in 24 years. Not long ago, most economists would have considered such an unemployment record impossible to achieve without igniting a cycle of wage-led inflation. Yet, in the first quarter of 1997 prices rose at only a 1.8 percent annual rate; some regional labor markets have maintained local unemployment rates of 4.0 percent without any sign of upward wage pressure. Can unemployment go even lower before prices begin to rise? Research Associate Barry Bluestone, of the University of Massachusetts Boston, and Stephen Rose, of the Educational Testing Service, think that it can.

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    Author(s):
    Barry Bluestone Stephen Rose

  • Working Paper No. 203 | August 1997
    A Critical Appraisal

    The nonaccelerating inflation rate of unemployment, or NAIRU, has acquired a central role in macroeconomic theory. Fear of inflation has led to a reluctance to allow the unemployment rate to fall below the estimated NAIRU. If so much weight is going to be placed on an estimate of a theoretical variable, it is extremely important to know how valid that theory is and how valid the estimates of that variable are. Visiting Scholar Malcolm Sawyer finds that the mechanism by which an economy would reach a NAIRU has been inadequately specified and that NAIRU models have ignored the role of aggregate demand by implicitly invoking Say's law that supply creates its own demand. He concludes that it is unwise to use the estimated NAIRU as a policy variable unless and until it can be established on stronger theoretical and empirical grounds.

  • Working Paper No. 202 | August 1997

    The nonaccelerating inflation rate of unemployment, or NAIRU, is generally viewed as a supply-side-determined, short-run equilibrium rate of unemployment. In most NAIRU models, aggregate demand plays no essential role in determining equilibrium unemployment. However, Visiting Scholar Malcolm Sawyer demonstrates that the relationship between the real wage and employment (often mistakenly called labor demand) cannot be fully articulated without reference to aggregate demand. In Sawyer's model, investment shifts the real wage-employment relationship by adding to the capital stock. Therefore, in a sufficiently expansionary environment, the NAIRU can be made compatible with full employment.

  • Working Paper No. 201 | August 1997
    The Skill-Base Hypothesis

    Over the last three decades, despite economic growth, the United States has experienced both increasing relative inequality and an absolute decline of real wages. Explanations sometimes offered for this inability to achieve sustainable prosperity are a weakening of innovative ability (a result of reduced expenditures on training, education, and research) and international competition from low-wage countries (forcing down wages). Research Associate William H. Lazonick, of the University of Massachusetts Lowell and INSEAD, champions a third explanation: the skill-base hypothesis.

    The skill-base hypothesis defines two strategies of human resource investment: a broad and deep skill base uses skilled work by many people, at different levels of the organizational hierarchy, and across organizational functions; a narrow and concentrated skill base uses skilled work by a small and elite portion of the labor force. According to the hypothesis, changes in technology and international competition have been important factors relating to level of sustained prosperity, but not for the reasons usually given. Lazonick observes that US firms are still innovative, but tend to invest in technologies that require a narrow and concentrated skill base. International competition has been important, not primarily because foreign wages are lower, but because other high-wage nations, such as Japan, have chosen superior corporate strategies. Lazonick uses a case study of the automobile industry in the United States and Japan to demonstrate that investment in technologies that rely on a broad and deep skill base will lead to more international competitiveness, economic equality, and sustainable prosperity.

  • Working Paper No. 199 | July 1997
    The US Machine Tool Industry and Sustainable Prosperity

    Good, stable jobs with high earnings started to disappear from the United States economy in the late 1970s. The loss of the majority of these jobs resulted from structural changes, not cyclical variations in the manufacturing sector. Robert Forrant, of the University of Massachusetts Lowell, studies the machine tool industry's role in the decline of the US manufacturing base, focusing on Japan's ability to surpass the United States in efficient production and the adoption of new technology.

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    Author(s):
    Robert Forrant

  • Working Paper No. 198 | July 1997
    The Status of Current Research, and Proposals for an Expanded Research Agenda

    The increase in earnings inequality in the United States is now a widely accepted fact that much economics literature has attempted to explain. Philip Moss, of the University of Massachusetts Lowell, examines the increase in inequality, evaluates the frequently given explanations for it, and offers an improved methodology for determining its causes.

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    Author(s):
    Philip Moss

  • Working Paper No. 197 | July 1997

    Opposition to the minimum wage, according to Resident Scholar Oren M. Levin-Waldman, ultimately rests on a popular political philosophy and a popular economic theory. The popular version of classical liberal philosophy stresses individualism over the common project and accordingly puts the employer's right to pay low wages over the common goal of a high-wage economy. The predominant economic theory stresses efficiency over any common goal and presupposes that unregulated markets are naturally efficient.

    According to Levin-Waldman, this economic theory views the market as perfectly competitive; left on its own, it operates efficiently to allocate goods and to pay all factors what they are worth. Any inefficiency is blamed, without proof, on government interference with the market. If individuals are dissatisfied with wages, they may look for another job or improve their skills. A minimum wage, if it is above the wage that would otherwise prevail, artificially increases wages above the marginal product of labor, reduces employment, and is, therefore, inefficient. In Levin-Waldman's view, most economists, wanting to focus only on objective criteria, conclude that consideration of this supposed inefficiency alone ought to drive the public policy process.

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 194 | May 1997
    Lousy Jobs or Lazy Workers?

    Most Americans believe that if they work hard, they should not be poor. Although recent government welfare reform policy is aimed at encouraging people to work more, seven to nine million working Americans remain poor. Visiting Scholar Marlene Kim, of the School of Labor and Management Relations, Cook College, Rutgers University, asks, Why are there so many working poor? Are they poor because they choose to work too few hours? If so, why don't they choose to work more? If they worked more, would doing so end their poverty? These questions have significance for public policy. If choosing too few hours is the problem, the only role policy might play is to encourage more work. But, if poverty is caused by forces beyond workers' control, policy could play a more substantial role. Kim finds that many of the working poor do not work more hours because they cannot. She also finds that because their wages are so low, most of the working poor would still be poor even if they worked full-time year-round.

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    Author(s):
    Marlene Kim

  • Working Paper No. 188 | April 1997
    Comparative Labor Market Problems in the United States versus Europe

    High unemployment rates and increasing terms of unemployment have persisted in western European countries for the past 20 years. These problems have been explained as resulting from inflexibility in the labor market created by such policies as protective labor market regulation and generous social assistance. The lower rates and shorter duration of unemployment in the United States were thought to result from greater labor market flexibility.

    On the basis of this analysis, European nations enacted changes, such as weakening regulations, to increase labor market flexibility. However, labor market analysts have found not only that such efforts have been largely unsuccessful at reducing unemployment or increasing labor mobility, but also that the United States experienced rising wage inequality over the same time period that unemployment problems occurred in Europe. In other words, both the United States and Europe face serious labor market problems.

    In this working paper, Rebecca M. Blank, of Northwestern University and the Northwestern University/University of Chicago Joint Center for Policy Research, analyzes these problems to assess the extent to which they reflect different institutional responses to related economic problems.

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    Author(s):
    Rebecca M. Blank

  • Working Paper No. 186 | March 1997

    In their study of industry wage premia, Research Associates Judith Fields of Lehman College, City University of New York, and Edward N. Wolff of New York University find that gender wage differentials can be explained only in part by the distribution of women and men in different industries, and that other factors, such as discrimination, play a role as well. They make the case that focused antidiscrimination policy can be effective in reducing the gender gap.

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    Author(s):
    Judith Fields Edward N. Wolff

  • Public Policy Brief No. 29 | February 1997
    The Collapse of Low-skill Wages

    David R. Howell argues that the collapse of low-skill wages in the United States cannot be explained by a skill mismatch resulting from a technology-driven decline in the demand for low-skill labor. He presents evidence refuting the prevailing belief that a substantial shift in demand away from low-skill work characterized the 1980s. Howell asserts that a more compelling explanation for the growing wage gap can be found in fundamental changes in the institutions, practices, and norms that determine labor market outcomes—a return to a confrontational attitude toward labor by management, a shift to a laissez-faire approach to regulatory and redistributive functions by government, and management’s adoption of low-road strategies to cut labor costs in response to competitive pressures.

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    Author(s):
    David R. Howell

  • Working Paper No. 183 | January 1997
    Is Prosperity Sustainable in the United States?

    Unless American corporations change their structure of governance, it is unlikely that many will remain prosperous in this age of global competition, argue Research Associates William H. Lazonick and Mary O'Sullivan. US companies are not being hurt by low-wage competition but by their failure to invest in the organizational learning required to remain competitive. US corporate managers have become increasingly concerned with providing returns to stockholders, while their foreign competitors, especially the Japanese, invest in innovative thinking in order to provide higher-quality products at lower prices. If US corporations are to remain competitive, the authors say, they must invest in organizational learning—the acquisition by members of the corporation of the knowledge to solve problems collectively. The goal of all should be improving the business as a whole.

  • Working Paper No. 179 | December 1996

    In this working paper, Research Associates William Baumol and Edward N. Wolff, both of New York University, explore the effects of the rate of technological progress on unemployment. They hypothesize that the sunk costs associated with a worker's training will depend on his or her previous training and education and the current pace of technological change. The faster the pace of change, the greater the sunk training costs, although education moderates the magnitude of those costs. A firm weighs wage and sunk training costs against a worker's marginal revenue yield. These factors combine to the disadvantage of the poorly educated, who will be forced to accept either a low wage or a longer duration of unemployment. A faster pace of technological change exacerbates this disadvantage.

  • Public Policy Brief No. 28 | November 1996
    Wage Insurance for the Working Poor

    Barry Bluestone of the University of Massachusetts and Teresa Ghilarducci of the University of Notre Dame show that although the poverty rate for elderly Americans has declined over the past three decades, the total number of persons in poverty has grown and the number of poor nonelderly adults in poverty has nearly doubled since 1970. The authors argue for a comprehensive and coherent strategy aimed at the working poor and those susceptible to highly fluctuating incomes. Two essential components of a wage insurance system already exist in the earned income tax credit (EITC) and the minimum wage. Neither by itself is an ideal solution to the wage poverty problem, but the two programs complement one another. What makes the two fit together so well is that the existence of a higher minimum wage actually reduces the negative productivity, fiscal impact, and moral hazard effects of the EITC, while the EITC makes up for the weak target efficiency and income adequacy of the minimum wage.

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    Author(s):
    Barry Bluestone Teresa Ghilarducci

  • Working Paper No. 178 | November 1996

    No recent development in the American labor market has been more dramatic and troubling than the collapse in the buying power of workers’ paychecks. This drop in the value of wages coincided with a sharp increase in earnings inequality. Perhaps the most highly publicized characteristic of recent earnings trends has been the widening gap between highly educated and poorly educated workers. Although supply-side changes appear to provide a reasonable explanation for the modest wage growth experienced by the most well-educated men in the 1980s, this collapse at the bottom of the earnings ladder is almost universally attributed to downward shifts in the demand for low-skill workers. According to this view, it was the growing mismatch between the skills demanded by firms and those supplied by the workforce that was mainly responsible for reducing wages among the low-skilled.

    This paper assesses the empirical support for the skill mismatch story: Has there, in fact, been a strong shift in demand away from low-skill workers? Does the timing of employment shifts by skill group across industries match trends in computerization? Have there been observable declines in low-wage employment shares and substantial increases in low-skill joblessness, as the neoclassical model would predict if there is skill mismatch? The author finds that the answer to each of these questions is no, and concludes that it is necessary to look beyond supply and demand shifts to explain the wage collapse.

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    Author(s):
    David R. Howell

  • Working Paper No. 176 | November 1996

    Resident Scholar Oren M. Levin-Waldman argues that, although the minimum wage is a serious economic issue, enacting an increase in the minimum wage is a political one. He finds that because the empirical results of an increase in the wage floor are "inconclusive,

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 174 | November 1996
    Comparisons and Refinements

    Recent discussion and some preliminary research have given a negative prognosis for children of immigrants. Senior Scholar Joel Perlmann and Roger Waldinger, professor of sociology at the University of California at Los Angeles, examine 1990 Census Public Use Samples (PUMS) to determine if conditions for the children of immigrants are as poor as indicated. They are particularly interested in second-generation Mexicans as Mexicans constitute the largest group among immigrants and the group most uniformly composed of workers who are unskilled or semiskilled and have relatively little education or capital. Given that Mexican immigrants make up such a large proportion of all immigrants, the authors want to find out if the Mexican experience differs from that of all other immigrants, because if it does, it may affect the data in ways that misrepresent the experience of all non-Mexican immigrants.

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    Author(s):
    Joel Perlmann Roger Waldinger

  • Public Policy Brief No. 26 | July 1996
    Reforming Unemployment Insurance: Toward Greater Employment

    What is needed to solve the problem of growing long-term unemployment is a two-tiered system that distinguishes between short-term and long-term unemployment. The system should continue to function as an insurance program for 26 weeks to allow workers to search for employment that represents the best match with their experience, skills, and credentials. The first tier of the improved system would include reforms to reduce short-term employment through such means as altering the employer taxes that finance unemployment insurance and instituting work-sharing arrangements in order to reduce the incidence of layoffs and to maintain employment levels during periods of economic decline. The second tier would include services such as reemployment assessment and workshops and training programs to help unemployed workers find work that matches their skills or help them acquire new skills that would make them more marketable. Unemployment insurance benefits beyond 26 weeks would be contingent upon workers’ making use of these services. Levin-Waldman states that the goal of reform is not “merely to achieve greater efficiency in facilitating reemployment, but to enhance a core value of American society: work.”

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 170 | June 1996
    Comparing Thirteen Measures of the US Fiscal Deficit on Theoretical and Empirical Grounds

    For some time economists have acknowledged that reported budgetary data do not necessarily reflect actual economic activity. Agreement has not been reached, however, on how budget figures should be adjusted to reflect such activity accurately. In this working paper, Resident Scholar Neil H. Buchanan examines 13 alternative measures of the budget deficit in order to determine which, if any, are theoretically or statistically sounder than existing measures. He evaluates them in terms of their theoretical value, that is, their ability to capture benefits (such as higher levels of employment [subject to NAIRU constraints], higher rates of growth, and higher levels of private investment), and costs (higher rates of inflation and lower levels of private investment, consumption, and net exports) to the economy. He also tests whether the new definitions provide empirically more robust estimates than existing measures.

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    Author(s):
    Neil H. Buchanan

  • Working Paper No. 168 | June 1996
    The Second Generation and Beyond, Then and Now

    Assimilation of today's immigrants is one topic in the current debate on immigration. Some observers assert that recent immigrants are unable to assimilate into American society as easily as past immigrants were able to. Others counter that the pressures against assimilation today are not strong. In this working paper, Senior Scholar Joel Perlmann and Research Associate Roger Waldinger, professor of sociology at the University of California at Los Angeles, argue that assimilation cannot be studied as an outcome alone, but should be viewed as a process, aspects of which are important in their own right.

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    Author(s):
    Joel Perlmann Roger Waldinger

  • Working Paper No. 166 | June 1996

    According to Resident Scholar Oren M. Levin-Waldman, the arguments both in favor of raising the minimum wage (to restore its real spending power to levels of previous years, to increase the incentive to work, and, as a matter of fairness, to allow those who work to earn incomes above the poverty line) and against raising the minimum (displacement effects resulting in lower levels of employment) both have merit, but ultimately "miss the point" because their focus is too narrow. They concentrate on how a change in the wage floor would affect one segment of the labor market (those at the bottom or teenage workers, for example) and not on how it would affect the market as a whole. Moreover, because findings on the short- and intermediate-term effects of a change in the minimum wage are inconclusive, discussion should focus on the longterm effects of raising the minimum wage, which could include raising productivity levels. The arguments for and against a higher minimum wage boil down to whether the US economy

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    Author(s):
    Oren Levin-Waldman

  • Working Paper No. 154 | January 1996

    In this working paper, James K. Galbraith rejects the analytical construct within which many economists currently operate—that is, the construct in which, in the extreme, macroeconomic behavior is identical to the behavior reflected in microeconomic demand and supply curves. He rejects it on the theoretical and practical grounds that microeconomic categories (supply, demand, price, and quantities) "have little bearing on important policy questions." The markets that have a bearing on policy either are asset markets (for which the rules are dramatically different from those for flow markets) or are not really markets at all, but rather a set of deeply structural social relations. According to such thinking, microeconomic issues become secondary in the policy arena and macroeconomic policy tools—spending, taxes, income policies, and interest rates—take the fore.

  • Working Paper No. 153 | December 1995

    In this working paper Research Associate Edward N. Wolff documents changes during the period 1950–90 in aggregate skill levels of the workplace. Wolff investigates skill trends at the sectoral level, paying special attention to changes in skill requirements in service and goods-producing sectors, and examines the role of technological change in changing the demand for skills. He reports the results of a regression analysis in which he relates changes in skill indexes to various measures of technological activity.

  • Working Paper No. 151 | December 1995

    Many participants in the current welfare debate assume that welfare recipients are taking unfair advantage of government programs by avoiding work. However, a growing body of research indicates that this assumption is untrue. In this working paper, Resident Scholar Marlene Kim and Thanos Mergoupis, of the Department of Economics at Rutgers University, show that many who qualify for benefits—food stamps, aid to families with dependent children (AFDC), and Medicaid—do not receive assistance. Moreover, many who qualify work many hours, are in families headed by married couples, are in their prime working years, and have at least a high school education. In their study of the decision

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    Author(s):
    Marlene Kim Thanos Mergoupis

  • Book Series | December 1995
    Essays in Memory of Athanasios Asimakopulos. Edited by Geoffrey Harcourt et al.

    The essays in this volume were written by colleagues and friends of the late Athanasios (Tom) Asimakopulos. They relate to those areas to which he contributed so much in his teaching and his writings. Most of the essays are concerned with interpretations and extensions, both theoretical and empirical, of the work of Keynes, Kalecki, and Sraffa, and with the relationships among these three authors. Many take as their starting point Asimakopulos’s own interpretations and extensions of the work, of these authors. There is also an essay on public pensions, which was a long-standing interest of Asimakopulos and of his first mentor, the late J. C. Weldon. The essays reflect the belief that guided Asimakopulos’s work: that economic research plays a decisive role in the development of a civilized, humane society. The volume includes essays and comments by Louis Ascah, Paul Davidson, Gilles Dostaler, Terri Gigantes, Geoffrey Harcourt, Jan A. Kregel, Heinz Kurz, Dimitri B. Papadimitriou, Sergio Parrinello, Alessandro Roncaglia, Robin Rowley, Neri Salvadori, Claudio Sardoni, and Bertram Schefold.

    Published By: Palgrave Macmillan, Ltd.

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    Author(s):
    Geoffrey Harcourt Alessandro Roncaglia Robin Rowley
  • Public Policy Brief No. 19 | April 1995
    Employee Participation and Productivity: Evidence from a New Survey of Japanese Firms

    Takao Kato outlines the types of human resource management practices (HRMPs) used in Japan and the effect of these employee participation programs on employee productivity and economic competitiveness. From these findings about the effects of HRMPs on Japanese productivity, Kato draws several conclusions for the direction that American policy might take in order to raise productivity in the United States. He advocates encouraging the diffusion of participatory HRMPs (both information-sharing and financial), supporting these programs once they are adopted, and recognizing the beneficial role of unions in employee participation. As to the role of government in fostering these programs, Kato found that in Japan government has played an informal and indirect role, primarily in the areas of data gathering, information dissemination, and education, rather than a direct role through interventions such as tax incentives (which are currently available to US firms adopting financial HRMPs).

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    Author(s):
    Takao Kato

  • Public Policy Brief No. 11 | March 1994
    Unemployment and Low Wages: The Distribution of Opportunity for Young Unskilled Workers

    Robert M. Hutchens examines three paths by which a young person with limited academic credentials may avoid a life of unemployment and low wages: obtaining additional formal schooling, securing a job that provides secure employment at “good” wages, or acquiring a job that provides skills and thereby opens a door to good future jobs. He finds that the policy most likely to reduce the supply of unskilled labor would include enhancing early childhood education programs, disbursing training vouchers to young adults, and restricting the immigration of unskilled workers. Owing to the difficulty of identifying jobs, occupations, and industries that would consistently result in financial security for those with limited academic skills, Hutchens concludes that, with few exceptions, demand-side interventions will not work.

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    Author(s):
    Robert M. Hutchens

  • Public Policy Brief No. 10 | November 1993
    Is Health Insurance Crippling the Labor Market?

    Recent survey results and anecdotal evidence appear to indicate that workers sometimes sacrifice job opportunities by remaining in their current position in order to retain health benefits. If “job-lock” is real, the nation pays an economic price in terms of a misallocation of workersamong productive opportunities, higher relocation and training costs for workers who have stayed too long in their jobs, and the loss of innovation, employment, and competition associated with start-up ventures. Douglas Holtz-Eakin suggests that the incidence of job-lock may be overstated. Therefore, reform programs proposing to dismantle the current system of employer-provided insurance in order to improve labor mobility are misguided. Rather, policy should aim to improve access to health care, improve the efficiency of insurance operations, and guarantee the portability of insurance coverage and premium expenses.

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    Author(s):
    Douglas Holtz-Eakin