The Labour Force And Unemployment Economics Essay

The Labour Force And Unemployment Economics EssayEvery market has buyers and sellers, and the labour market is no expulsion the buyers be employers, and the sellers ar earners. Some of this participant may non be active at whatsoever given moment in the sense of seeking new employees or new contrasts, but on any given day, thousands of firms and workers will be in the market trying to transact.The Labour Force and UnemploymentThe status labour force refers to all those oer 16 years of age who are either active, actively seeking work, or expecting recall from a layoff. Those in the labour force who are not employed for pay are the unemployed.1People who are not employed and are neither looking for work nor waiting to be recalled from layoff by their employers are not counted as part of the labour force. The total labour force thus consists of the employed and the unemployed.The number and identities of sight in each labour market category are always changing the flows of pe ople from one category to another are considerable. There are four major flows between labour market statesemployed workers become unemployed by quitting voluntarily or being laid off (being involuntarily sepa arranged from the firm, either temporarily or permanently),unemployed workers obtain employment by being newly hired or being recalled to a job from which they were temporarily laid off,those in the labour force, whether employed or unemployed, can leave the labour force by retiring or otherwise decision making against taking or seeking work for pay (dropping out),those who have never worked or looked for a job expand the labour force by first appearance it, while those who have dropped out do so by re-entering the labour force.The ratio of those unemployed to those in the labour force is the unemployment respect. While this station is in the altogether and has several imperfections, it is the most widely cited measure of labour market conditions.The relation among unempl oyment, employment, and labour forceAnalytically, to access the unemployment rate we can use the following equatingwhere , , and designate respectively the working-age population, the level of employment, the number of unemployed, and the fraternity rate at period t. Defining the unemployment as , we haveUsing this equation in logarithm terms at time t and t-1, we getAssuming that u is a small number, this relation allows us to express the volt-ampereiation of unemployment rate as a function of the growth rates of working-age population, employment, and participationThis de topic shows that the variation in the rate of unemployment come from variations in the employment rate, the size of the working-age population, and participation rate.Chapter 2 Some factsThe different unemployment experienceDuring the last 20 years, the industrialized countries have evolved in very different direction with respect to unemployment. In contradiction to Japan, or the join States, most of Europ ean countries showed a high proportion of unemployment.Table 1.1 Rates of unemployment, participation, and employment in 20 OECD countries in 2011CountryUnemployment Rate fight RateEmployment RateAustralia5,1078,872,70Austria4,1475,7972,13Belgium7,1468,8861,93Canada7,4580,2571,98Denmark7,5783,1973,15Finland7,7775,4369,03France9,2669,3463,80Germany5,9281,0472,53Greece17,6668,5755,55Ireland14,3970,9659,20Italy8,4063,0156,98Japan4,5780,6171,20Luxembourg4,9070,5764,63Netherlands4,4480,1374,88Norway3,2180,2275,30Portugal12,7477,4264,20Spain21,6475,2857,68Sweden7,5431,0074,10Switzerland4,0486,6079,35 united Kingdom8,0176,7569,48United States8,9564,2166,65Euro area (17 countries)10,0726,2064,25EU (27 countries)9,5964,30OECD Total7,9227,8064,85Source OECD DataTable 1.1 summarises the unemployment, participation and employment rates in 20 OECD countries for 2011. We see that unemployment is a phenomenon that touches all the countries, but in different proportions. There are some countries s uch as Austria, Japan, Luxemburg, the Netherlands, Norway, and Switzerland, have an unemployment rate under 5 per cent. But other countries, such as Greece, Ireland, Portugal, and Spain, have an unemployment rate higher than 10 per cent. For the European Union as a whole (27 countries), the mediocre unemployment rate is the neighbourhood of 10 per cent, 2 points greater than the overall OECD unemployment rate.The third column reports the employment rate, i.e. the ratio of the number of persons employed to the number of person in the population (working-age from 15 to 64 years old). This indicator is very important for the analysis since it can be used as a complement to the data of unemployment, given that the definition of unemployment is necessarily objective. As we can see from table 1.1 countries with high employment rate are in any case the ones who have low rates of unemployment. So there is a negative relationship among them.The second column also shows that participation rates are exceedingly dispersed, since they vary from 63.01 per cent in Italy to 86.60 per cent in Switzerland. Moreover, countries that face high unemployment rate generally have relatively a weak participation rate.This rapid overview of the rates of unemployment, participation, and employment in different OECD countries suggest that certain countries face a relatively high unemployment rate because of insufficient job creation. Examination of changes over time since the beginning of 1950s in unemployment and employment rate in the United States and selected OECD countries will throw further lights on the origins of unemployment.The US unemployment experience in comparative perspectiveTable 1.2 summarises the unemployment experience of the United States, selected other countries, and the OECD as a whole from 1950 to 2011. The OECD unemployment rate averaged about 3 per cent during the 1950s and sixties unemployment throughout the OECD increased sharply in the aftermath of the o il shocks of the 1970s and continued rising the worldwide recession of the early 1980s. The overall OECD unemployment rate more than doubled from 2.8 per cent in the 1960s to 7.0 per cent in the 1980s, and has remained at an even higher rate in the 1990s. Last year the overall OECD unemployment rate was 8.2 per cent.Table 1.2 Unemployment rates in selected OECD countriesCountry1950196019701980199020002011Australia1,502,003,907,509,106,285,20Canada3,804,706,609,309,906,827,50France1,501,703,809,0011,109,49,30Germany4,900,601,905,706,507,766,00Italy7,203,804,707,5010,2010,598,50Japan2,101,301,702,502.74,724,80Netherlands1,500,904,009,606,902,954,40Norway1,701,701,602,805,303,333,30New Zeland0,900,901,504,108,109,006,70Portugal2,202,401,607,305,804,0413,40Spain2,102,304,2017,5020,3013,9221,80Sweden1,701,501,802,207,005,47,60United Kingdom1,702,004,4010,108,705,588,00United States4,404,706,107,206,004,009,10OECD3,502,804,307,007,306,18,2Source OECD DataTable 1.2 indicates that major OE CD nations shared a pattern of rising unemployment from the 1960s to the 1970s to the 1980s, but the magnitude of the increases vary widely across countries, with the largest increase in Spain. In the 1990s the unemployment experience warp somewhat, with continued increases from the 1980s in most European countries and Australia, but decline in the United States, United Kingdom, and Portugal. In the 2000s there is a general decrement of unemployment rate among all the countries, except in Italy and Japan. From 2000 to 2011 unemployment is a phenomenon that touches all the countries but in different proportion, with the largest increase in Spain and Portugal.The table highlights the distinctive aspects of the evolution of US unemployment. The United States has moved from having a consistently higher unemployment rate than the OECD as a whole in the 1950s, 1960s and 1970s to having a much scorn rate in the 1990s and 2000s, but again a higher unemployment in 2011. The United States is the only major OECD economy with a lower average unemployment rate in 2000s than in 1980s 4.0 per cent in the 2000s versus 7.2 per cent in 1980s. But the current US unemployment rate of 9.1 per cent is the highest experienced since 1980.The composition of US unemployment also differs substantially from many other OECD nations. The United States has much larger month-to-month flows into and out of employment than most of OECD economies and a much lower incidence of long-term unemployment than any advanced OECD economy. Long-term unemployment (six months and less than one year) as a percentage of total unemployment in 2011 stood at 12.43 per cent in the United States as compared with 9.8 per cent in Canada, 13.48 per cent in Australia, 18.65 per cent in France, 14.71 in Germany, 15.03 in Italy, 17.68 in Greece and 18.66 in Spain. US unemployment rates for the working-age population are particularly low (and employment/population ratios are particularly high) for young workers (thos e aged to 15 to 24), women and older workers (those aged 55 to 64). Overall, the US labour market does a relatively good job of moving new entrants and women into employment. European labour market institutions (especially employment protection laws) seem geared to keeping conjoin males in work, but appear to make it tougher for new entrants to gain steady employment.Cyclical versus Structural unemploymentThe analytical discussion of unemployment since Friedman (1968) and Phelps (1968) start with the hypothesis that at any given time, a national economy is characterized by a natural rate of unemployment. Aggregate demand expansions can (at least temporarily) push the economy below this rate of unemployment, but at the cost of accelerating puffiness. Similarly, shocks that raise unemployment above the natural rate lead to retardant lump. As long as the policy-maker avoids explosive inflation or deflation, the economy cannot remain persistently above or below the natural rate of un employment, but it may fluctuate around it.This hypothesis suggests separating changes in unemployment into cyclical fluctuation around the natural rate and structural movement in the natural rate itself. attribute 1 Unemployment in the US, Australia, Europe and OECDFigure 1 illustrates the time patterns of the unemployment rates for the United States, Australia, Europe, and OECD countries from 1970 to 2011. The figure suggests cyclical unemployment fluctuation around a relatively stable natural rate in the United States until 2008, and a possible upward drift in the natural rate in Europe and Australia. The acceleration in inflation in most European economies in late 1980s, despite much higher unemployment rate than in the 1960s and 1970s, indicates a large rise in natural rate of unemployment. The deceleration of inflation in the 1990s and early 2000s suggests that some cyclical component has played a role in recent high European unemployment.2 Data and Descriptive statisticsI ne xt explore in a more depth, the extent to which a relatively stable natural rate of unemployment since 1970 or so is consistent with the experience of the flexible US labour market. The data for this analysis are taken from Bureau of Labour Statistics from 1970 to 2012 (monthly data).3 Empirical methodological analysis and ResultsFor estimating the natural rate of unemployment (un) I am going to use the expectations-augmented (or accelerationist) Phillips Curve (EAPC) in which the rate of growth of price inflation (or more generally the contravention between current inflation and expected inflation) depends on the deviation of the unemployment rate from the natural ratewhere p is the log of the price level, u is the unemployment rate, is a official coefficient, equals, and is an error term. Expected inflation is assumed to equal the lagged inflation rate (). A regression of the change in the inflation rate on the unemployment rate yields estimates of the natural rate of unemploym ent ( = -. The basic idea behind this equation is that price inflation increases when unemployment is below the natural rate and decreases when it is above.Table 2.1 Price inflation and unemployment in the United States, Europe and OECD countriesUnited StatesEuropeOECD(1)(2)(3)(4)(5)Constant0.3975620.5191190.14205211.8702712.001316.1631988.5684301.9103307.5033195.137325D80-0.3480370.929960D90-0.3553820.950040D00-0.3695120.986341Unemployment rate (u)-0.006995-0.0262070.032498-0.596646-0.9064320.6697812.8359752.9183813.1296602.544017Observations (n)5115115114141Durbin-Watson Statistic0.7983940.8289860.8335140.2336270.304103R20.0061910.0155550.0164570.2007340.142330Notes The US regressions cover 1970 to 2012. The symbiotic variable in all regressions is the inflation rate (Dp).The numbers in parenthesis are well-worn errors. p=100*log(CPI), using the Consumer Price Index for the United States and Europe u is the unemployment rate measured in percentage, D80=1 for the 1980- and 0 othe rwise D90=1 for the 1990- and 0 otherwise D00=1 for the 2000- and 0 otherwise.Estimation for US unemploymentDependent inconsistent PMethod least(prenominal) SquaresDate 10/04/12 Time 1704Sample (adjusted) 1970M02 2012M08Included observations 511 after adjustmentsVariableCoefficientStd. Errort-StatisticProb.C0.3975620.0645066.1631980.0000UNEMP-0.0069950.010444-0.6697810.5033D80-0.3480370.374250-0.9299600.3528D90-0.3553820.374071-0.9500400.3425D00-0.3695120.374629-0.9863410.3244R-squared0.006191Mean dependent var0.353720Adjusted R-squared-0.001665S.D. dependent var0.373392S.E. of regression0.373702Akaike info amount0.879023Sum squared resid70.66469Schwarz amount0.920475Log likelihood-219.5904F-statistic0.788056Durbin-Watson stat0.798394Prob(F-statistic)0.533265Estimation for US male unemploymentDependent Variable PMethod Least SquaresDate 10/04/12 Time 1705Sample (adjusted) 1970M02 2012M08Included observations 511 after adjustmentsVariableCoefficientStd. Errort-StatisticProb.C0.51 91190.0605858.5684300.0000UNEMPMALE-0.0262070.009241-2.8359750.0048R-squared0.015555Mean dependent var0.353720Adjusted R-squared0.013621S.D. dependent var0.373392S.E. of regression0.370840Akaike info criterion0.857814Sum squared resid69.99885Schwarz criterion0.874395Log likelihood-217.1715F-statistic8.042753Durbin-Watson stat0.828986Prob(F-statistic)0.004751Estimation for US female unemploymentDependent Variable PMethod Least SquaresDate 10/04/12 Time 1707Sample (adjusted) 1970M02 2012M08Included observations 511 after adjustmentsVariableCoefficientStd. Errort-StatisticProb.C0.1420520.0743601.9103300.0567UNEMPFEMALE0.0324980.0111362.9183810.0037R-squared0.016457Mean dependent var0.353720Adjusted R-squared0.014525S.D. dependent var0.373392S.E. of regression0.370670Akaike info criterion0.856897Sum squared resid69.93471Schwarz criterion0.873478Log likelihood-216.9373F-statistic8.516946Durbin-Watson stat0.833514Prob(F-statistic)0.003674Estimation for Europe unemploymentDependent Variabl e P2Method Least SquaresDate 10/04/12 Time 1708Sample (adjusted) 1970M02 1973M06Included observations 41 after adjustmentsVariableCoefficientStd. Errort-StatisticProb.C11.870271.5820027.5033190.0000UNEMPEURO-0.5966460.190642-3.1296600.0033R-squared0.200734Mean dependent var7.164938Adjusted R-squared0.180240S.D. dependent var3.481375S.E. of regression3.152057Akaike info criterion5.181538Sum squared resid387.4831Schwarz criterion5.265127Log likelihood-104.2215F-statistic9.794774Durbin-Watson stat0.233627Prob(F-statistic)0.003308Estimation for Europe unemploymentDependent Variable P3Method Least SquaresDate 10/04/12 Time 1709Sample (adjusted) 1970M02 1973M06Included observations 41 after adjustmentsVariableCoefficientStd. Errort-StatisticProb.C12.001312.3361025.1373250.0000UNEMPOECD-0.9064320.356299-2.5440170.0150R-squared0.142330Mean dependent var6.186970Adjusted R-squared0.120338S.D. dependent var3.301618S.E. of regression3.096597Akaike info criterion5.146035Sum squared resid373.9676 Schwarz criterion5.229624Log likelihood-103.4937F-statistic6.472025Durbin-Watson stat0.304103Prob(F-statistic)0.015033ConclusionReferencesLiteratureRonald G. Ehrenberg, Robert S. smith Modern Labour Economics. Theory and Public Policy Pearson International Edition, 2009, Tenth EditionInternet Sourceshttp//www.tradingeconomics.comhttp//www.indexmundi.com/http//www.statcan.gc.ca/daily-quotidien/120907/dq120907a-eng.htmEurostat Website http//ec.europa.eu/eurostatI have a problem with the regression of this putI have monthly data. But when I estimate it on Eviews, the results I get are not that expected R-squared is very small (near to zero), the standard errors are all smaller than 1.In order to estimate the model first I have done this P=100*log(CPI), but Im not sure if is right or not.I can send the data after if this description is not enough.